Correlation Between Sichuan Yahua and Anyang Iron

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

By analyzing existing cross correlation between Sichuan Yahua Industrial and Anyang Iron Steel, you can compare the effects of market volatilities on Sichuan Yahua and Anyang Iron 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 Yahua with a short position of Anyang Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Yahua and Anyang Iron.

Diversification Opportunities for Sichuan Yahua and Anyang Iron

0.74

Correlation Coefficient

Sichuan Yahua  Anyang Iron

Poor diversification

The 3 months correlation between Sichuan and Anyang is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Yahua Industrial and Anyang Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anyang Iron Steel and Sichuan Yahua 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 Yahua Industrial are associated (or correlated) with Anyang Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anyang Iron Steel has no effect on the direction of Sichuan Yahua i.e., Sichuan Yahua and Anyang Iron go up and down completely randomly.

Pair Corralation between Sichuan Yahua and Anyang Iron

Assuming the 90 days trading horizon Sichuan Yahua Industrial is expected to generate 0.97 times more return on investment than Anyang Iron. However, Sichuan Yahua Industrial is 1.04 times less risky than Anyang Iron. It trades about 0.01 of its potential returns per unit of risk. Anyang Iron Steel is currently generating about -0.01 per unit of risk. If you would invest  1,246  in Sichuan Yahua Industrial on October 9, 2024 and sell it today you would lose (76.00) from holding Sichuan Yahua Industrial or give up 6.1% of portfolio value over 90 days.

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

Sichuan Yahua Industrial  vs.  Anyang Iron Steel

Sichuan Yahua Industrial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Yahua Industrial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Yahua may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Anyang Iron Steel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Anyang Iron Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anyang Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sichuan Yahua and Anyang Iron

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

The idea behind Sichuan Yahua Industrial and Anyang Iron Steel 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.