Correlation Between China Merchants and Tianshan Aluminum

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

By analyzing existing cross correlation between China Merchants Shekou and Tianshan Aluminum Group, you can compare the effects of market volatilities on China Merchants and Tianshan Aluminum 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 Merchants with a short position of Tianshan Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Tianshan Aluminum.

Diversification Opportunities for China Merchants and Tianshan Aluminum

0.81

Correlation Coefficient

China Merchants  Tianshan Aluminum

Very poor diversification

The 3 months correlation between China and Tianshan is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Shekou and Tianshan Aluminum Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianshan Aluminum and China Merchants 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 Merchants Shekou are associated (or correlated) with Tianshan Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianshan Aluminum has no effect on the direction of China Merchants i.e., China Merchants and Tianshan Aluminum go up and down completely randomly.

Pair Corralation between China Merchants and Tianshan Aluminum

Assuming the 90 days trading horizon China Merchants Shekou is expected to under-perform the Tianshan Aluminum. In addition to that, China Merchants is 1.54 times more volatile than Tianshan Aluminum Group. It trades about -0.04 of its total potential returns per unit of risk. Tianshan Aluminum Group is currently generating about 0.01 per unit of volatility. If you would invest  803.00  in Tianshan Aluminum Group on September 26, 2024 and sell it today you would earn a total of  0.00  from holding Tianshan Aluminum Group or generate 0.0% return on investment over 90 days.

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

China Merchants Shekou  vs.  Tianshan Aluminum Group

China Merchants Shekou

Risk-Adjusted Performance

0 of 100

Very Weak

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

Tianshan Aluminum

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tianshan Aluminum Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianshan Aluminum may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Merchants and Tianshan Aluminum

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

The idea behind China Merchants Shekou and Tianshan Aluminum Group 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.