Correlation Between Western Metal and Hubei Geoway

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

Diversification Opportunities for Western Metal and Hubei Geoway

-0.41

Correlation Coefficient

Western Metal  Hubei Geoway

Very good diversification

The 3 months correlation between Western and Hubei is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Western Metal Materials and Hubei Geoway Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Geoway Investment 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 Hubei Geoway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Geoway Investment has no effect on the direction of Western Metal i.e., Western Metal and Hubei Geoway go up and down completely randomly.

Pair Corralation between Western Metal and Hubei Geoway

Assuming the 90 days trading horizon Western Metal Materials is expected to generate 0.95 times more return on investment than Hubei Geoway. However, Western Metal Materials is 1.06 times less risky than Hubei Geoway. It trades about 0.09 of its potential returns per unit of risk. Hubei Geoway Investment is currently generating about 0.0 per unit of risk. If you would invest  1,618  in Western Metal Materials on December 1, 2024 and sell it today you would earn a total of  226.00  from holding Western Metal Materials or generate 13.97% return on investment over 90 days.

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

Western Metal Materials  vs.  Hubei Geoway Investment

Western Metal Materials

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 6 (%) 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.

Hubei Geoway Investment

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Western Metal and Hubei Geoway

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

The idea behind Western Metal Materials and Hubei Geoway Investment 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.