Correlation Between Sichuan Tianqi and Gotion High

Can any of the company-specific risk be diversified away by investing in both Sichuan Tianqi and Gotion 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 Sichuan Tianqi and Gotion High into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sichuan Tianqi Lithium and Gotion High tech, you can compare the effects of market volatilities on Sichuan Tianqi and Gotion 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 Sichuan Tianqi with a short position of Gotion High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Tianqi and Gotion High.

Diversification Opportunities for Sichuan Tianqi and Gotion High

0.96

Correlation Coefficient

Sichuan Tianqi  Gotion High

Almost no diversification

The 3 months correlation between Sichuan and Gotion is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Tianqi Lithium and Gotion High tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gotion High tech and Sichuan Tianqi 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 Sichuan Tianqi Lithium are associated (or correlated) with Gotion High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gotion High tech has no effect on the direction of Sichuan Tianqi i.e., Sichuan Tianqi and Gotion High go up and down completely randomly.

Pair Corralation between Sichuan Tianqi and Gotion High

Assuming the 90 days trading horizon Sichuan Tianqi Lithium is expected to under-perform the Gotion High. But the stock apears to be less risky and, when comparing its historical volatility, Sichuan Tianqi Lithium is 1.4 times less risky than Gotion High. The stock trades about -0.4 of its potential returns per unit of risk. The Gotion High tech is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  2,375  in Gotion High tech on September 22, 2024 and sell it today you would lose (193.00) from holding Gotion High tech or give up 8.13% of portfolio value over 90 days.

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

Sichuan Tianqi Lithium  vs.  Gotion High tech

Sichuan Tianqi Lithium

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Tianqi Lithium are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Tianqi sustained solid returns over the last few months and may actually be approaching a breakup point.

Gotion High tech

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Sichuan Tianqi and Gotion High

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

The idea behind Sichuan Tianqi Lithium and Gotion High tech 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.