Correlation Between Sichuan Tianqi and GEM

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

Diversification Opportunities for Sichuan Tianqi and GEM

0.81

Correlation Coefficient

Sichuan Tianqi  GEM

Very poor diversification

The 3 months correlation between Sichuan and GEM is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Tianqi Lithium and GEM Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEM Co 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 GEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEM Co has no effect on the direction of Sichuan Tianqi i.e., Sichuan Tianqi and GEM go up and down completely randomly.

Pair Corralation between Sichuan Tianqi and GEM

Assuming the 90 days trading horizon Sichuan Tianqi Lithium is expected to under-perform the GEM. In addition to that, Sichuan Tianqi is 1.6 times more volatile than GEM Co. It trades about -0.34 of its total potential returns per unit of risk. GEM Co is currently generating about -0.23 per unit of volatility. If you would invest  688.00  in GEM Co on September 27, 2024 and sell it today you would lose (33.00) from holding GEM Co or give up 4.8% of portfolio value over 90 days.

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

Sichuan Tianqi Lithium  vs.  GEM Co

Sichuan Tianqi Lithium

Risk-Adjusted Performance

3 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Tianqi Lithium are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Tianqi may actually be approaching a critical reversion point that can send shares even higher in January 2025.

GEM Co

Risk-Adjusted Performance

1 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GEM Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, GEM is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sichuan Tianqi and GEM

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

The idea behind Sichuan Tianqi Lithium and GEM Co 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.