Correlation Between China Securities and Yunnan Copper

Can any of the company-specific risk be diversified away by investing in both China Securities and Yunnan Copper 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 Securities and Yunnan Copper into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Securities 800 and Yunnan Copper Co, you can compare the effects of market volatilities on China Securities and Yunnan Copper 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 Securities with a short position of Yunnan Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Securities and Yunnan Copper.

Diversification Opportunities for China Securities and Yunnan Copper

0.93

Correlation Coefficient

China Securities  Yunnan Copper

Almost no diversification

The 3 months correlation between China and Yunnan is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding China Securities 800 and Yunnan Copper Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yunnan Copper and China Securities 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 Securities 800 are associated (or correlated) with Yunnan Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yunnan Copper has no effect on the direction of China Securities i.e., China Securities and Yunnan Copper go up and down completely randomly.

Pair Corralation between China Securities and Yunnan Copper

Assuming the 90 days trading horizon China Securities 800 is expected to generate 1.01 times more return on investment than Yunnan Copper. However, China Securities is 1.01 times more volatile than Yunnan Copper Co. It trades about 0.2 of its potential returns per unit of risk. Yunnan Copper Co is currently generating about 0.17 per unit of risk. If you would invest  337,750  in China Securities 800 on September 14, 2024 and sell it today you would earn a total of  99,412  from holding China Securities 800 or generate 29.43% return on investment over 90 days.

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

China Securities 800  vs.  Yunnan Copper Co

Pair Trading with China Securities and Yunnan Copper

The main advantage of trading using opposite China Securities and Yunnan Copper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Securities position performs unexpectedly, Yunnan Copper 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 Yunnan Copper will offset losses from the drop in Yunnan Copper's long position.

The idea behind China Securities 800 and Yunnan Copper Co 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.