Correlation Between Western Metal and Yili Chuanning

Can any of the company-specific risk be diversified away by investing in both Western Metal and Yili Chuanning 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 Yili Chuanning 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 Yili Chuanning Biotechnology, you can compare the effects of market volatilities on Western Metal and Yili Chuanning 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 Yili Chuanning. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Metal and Yili Chuanning.

Diversification Opportunities for Western Metal and Yili Chuanning

0.94

Correlation Coefficient

Western Metal  Yili Chuanning

Almost no diversification

The 3 months correlation between Western and Yili is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Western Metal Materials and Yili Chuanning Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yili Chuanning Biote 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 Yili Chuanning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yili Chuanning Biote has no effect on the direction of Western Metal i.e., Western Metal and Yili Chuanning go up and down completely randomly.

Pair Corralation between Western Metal and Yili Chuanning

Assuming the 90 days trading horizon Western Metal Materials is expected to generate 0.71 times more return on investment than Yili Chuanning. However, Western Metal Materials is 1.4 times less risky than Yili Chuanning. It trades about 0.14 of its potential returns per unit of risk. Yili Chuanning Biotechnology is currently generating about 0.09 per unit of risk. If you would invest  1,285  in Western Metal Materials on September 2, 2024 and sell it today you would earn a total of  331.00  from holding Western Metal Materials or generate 25.76% return on investment over 90 days.

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

Western Metal Materials  vs.  Yili Chuanning Biotechnology

Western Metal Materials

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 11 (%) 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.

Yili Chuanning Biote

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yili Chuanning Biotechnology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yili Chuanning sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Metal and Yili Chuanning

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

The idea behind Western Metal Materials and Yili Chuanning Biotechnology 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.