Correlation Between Western Metal and Changchun High

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Can any of the company-specific risk be diversified away by investing in both Western Metal and Changchun High 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 Western Metal and Changchun High into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Metal Materials and Changchun High New, you can compare the effects of market volatilities on Western Metal and Changchun High 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 Western Metal with a short position of Changchun High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Metal and Changchun High.

Diversification Opportunities for Western Metal and Changchun High

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Western and Changchun is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Western Metal Materials and Changchun High New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun High New and Western Metal 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 Western Metal Materials are associated (or correlated) with Changchun High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun High New has no effect on the direction of Western Metal i.e., Western Metal and Changchun High go up and down completely randomly.

Pair Corralation between Western Metal and Changchun High

Assuming the 90 days trading horizon Western Metal Materials is expected to generate 1.05 times more return on investment than Changchun High. However, Western Metal is 1.05 times more volatile than Changchun High New. It trades about 0.09 of its potential returns per unit of risk. Changchun High New is currently generating about 0.03 per unit of risk. If you would invest  1,411  in Western Metal Materials on September 24, 2024 and sell it today you would earn a total of  400.00  from holding Western Metal Materials or generate 28.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Western Metal Materials  vs.  Changchun High New

 Performance 
       Timeline  
Western Metal Materials 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Metal sustained solid returns over the last few months and may actually be approaching a breakup point.
Changchun High New 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Changchun High New are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun High sustained solid returns over the last few months and may actually be approaching a breakup point.

Western Metal and Changchun High Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Western Metal and Changchun High

The main advantage of trading using opposite Western Metal and Changchun High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Metal position performs unexpectedly, Changchun High 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 Changchun High will offset losses from the drop in Changchun High's long position.
The idea behind Western Metal Materials and Changchun High New 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 Commodity Directory module to find actively traded commodities issued by global exchanges.

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