Correlation Between China Minmetals and Bright Dairy

Can any of the company-specific risk be diversified away by investing in both China Minmetals and Bright Dairy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining China Minmetals and Bright Dairy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Minmetals Rare and Bright Dairy Food, you can compare the effects of market volatilities on China Minmetals and Bright Dairy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in China Minmetals with a short position of Bright Dairy. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Minmetals and Bright Dairy.

Diversification Opportunities for China Minmetals and Bright Dairy

0.33

Correlation Coefficient

China Minmetals  Bright Dairy

Weak diversification

The 3 months correlation between China and Bright is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding China Minmetals Rare and Bright Dairy Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Dairy Food and China Minmetals is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on China Minmetals Rare are associated (or correlated) with Bright Dairy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Dairy Food has no effect on the direction of China Minmetals i.e., China Minmetals and Bright Dairy go up and down completely randomly.

Pair Corralation between China Minmetals and Bright Dairy

Assuming the 90 days trading horizon China Minmetals Rare is expected to under-perform the Bright Dairy. But the stock apears to be less risky and, when comparing its historical volatility, China Minmetals Rare is 1.48 times less risky than Bright Dairy. The stock trades about -0.3 of its potential returns per unit of risk. The Bright Dairy Food is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  883.00  in Bright Dairy Food on October 9, 2024 and sell it today you would lose (60.00) from holding Bright Dairy Food or give up 6.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

China Minmetals Rare  vs.  Bright Dairy Food

China Minmetals Rare

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Minmetals Rare are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Minmetals may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Bright Dairy Food

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bright Dairy Food has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bright Dairy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Minmetals and Bright Dairy

The main advantage of trading using opposite China Minmetals and Bright Dairy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Minmetals position performs unexpectedly, Bright Dairy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Bright Dairy will offset losses from the drop in Bright Dairy's long position.

The idea behind China Minmetals Rare and Bright Dairy Food pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.