Correlation Between Ningbo Ligong and Anhui Tongguan

Can any of the company-specific risk be diversified away by investing in both Ningbo Ligong and Anhui Tongguan 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 Ningbo Ligong and Anhui Tongguan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ningbo Ligong Online and Anhui Tongguan Copper, you can compare the effects of market volatilities on Ningbo Ligong and Anhui Tongguan 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 Ningbo Ligong with a short position of Anhui Tongguan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ningbo Ligong and Anhui Tongguan.

Diversification Opportunities for Ningbo Ligong and Anhui Tongguan

0.76

Correlation Coefficient

Ningbo Ligong  Anhui Tongguan

Poor diversification

The 3 months correlation between Ningbo and Anhui is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Ligong Online and Anhui Tongguan Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Tongguan Copper and Ningbo Ligong 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 Ningbo Ligong Online are associated (or correlated) with Anhui Tongguan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Tongguan Copper has no effect on the direction of Ningbo Ligong i.e., Ningbo Ligong and Anhui Tongguan go up and down completely randomly.

Pair Corralation between Ningbo Ligong and Anhui Tongguan

Assuming the 90 days trading horizon Ningbo Ligong is expected to generate 1.06 times less return on investment than Anhui Tongguan. But when comparing it to its historical volatility, Ningbo Ligong Online is 1.3 times less risky than Anhui Tongguan. It trades about 0.08 of its potential returns per unit of risk. Anhui Tongguan Copper is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,053  in Anhui Tongguan Copper on December 24, 2024 and sell it today you would earn a total of  92.00  from holding Anhui Tongguan Copper or generate 8.74% return on investment over 90 days.

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

Ningbo Ligong Online  vs.  Anhui Tongguan Copper

Ningbo Ligong Online

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Ligong Online are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Ligong may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Anhui Tongguan Copper

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Tongguan Copper are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Tongguan may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Ningbo Ligong and Anhui Tongguan

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

The idea behind Ningbo Ligong Online and Anhui Tongguan Copper 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.