Correlation Between Western Metal and Chongqing Sulian

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

Diversification Opportunities for Western Metal and Chongqing Sulian

0.62

Correlation Coefficient

Western Metal  Chongqing Sulian

Poor diversification

The 3 months correlation between Western and Chongqing is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Western Metal Materials and Chongqing Sulian Plastic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Sulian Plastic 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 Chongqing Sulian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Sulian Plastic has no effect on the direction of Western Metal i.e., Western Metal and Chongqing Sulian go up and down completely randomly.

Pair Corralation between Western Metal and Chongqing Sulian

Assuming the 90 days trading horizon Western Metal is expected to generate 3.59 times less return on investment than Chongqing Sulian. But when comparing it to its historical volatility, Western Metal Materials is 1.77 times less risky than Chongqing Sulian. It trades about 0.14 of its potential returns per unit of risk. Chongqing Sulian Plastic is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  2,432  in Chongqing Sulian Plastic on December 11, 2024 and sell it today you would earn a total of  1,731  from holding Chongqing Sulian Plastic or generate 71.18% return on investment over 90 days.

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

Western Metal Materials  vs.  Chongqing Sulian Plastic

Western Metal Materials

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 13 (%) 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.

Chongqing Sulian Plastic

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Sulian Plastic are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Sulian sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Metal and Chongqing Sulian

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

The idea behind Western Metal Materials and Chongqing Sulian Plastic 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.