Correlation Between Sichuan Yahua and Xinjiang Baodi

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

Diversification Opportunities for Sichuan Yahua and Xinjiang Baodi

0.96

Correlation Coefficient

Sichuan Yahua  Xinjiang Baodi

Almost no diversification

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

Pair Corralation between Sichuan Yahua and Xinjiang Baodi

Assuming the 90 days trading horizon Sichuan Yahua Industrial is expected to generate 1.32 times more return on investment than Xinjiang Baodi. However, Sichuan Yahua is 1.32 times more volatile than Xinjiang Baodi Mining. It trades about 0.2 of its potential returns per unit of risk. Xinjiang Baodi Mining is currently generating about 0.16 per unit of risk. If you would invest  871.00  in Sichuan Yahua Industrial on September 12, 2024 and sell it today you would earn a total of  393.00  from holding Sichuan Yahua Industrial or generate 45.12% return on investment over 90 days.

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

Sichuan Yahua Industrial  vs.  Xinjiang Baodi Mining

Sichuan Yahua Industrial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Yahua Industrial are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Yahua sustained solid returns over the last few months and may actually be approaching a breakup point.

Xinjiang Baodi Mining

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Sichuan Yahua and Xinjiang Baodi

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

The idea behind Sichuan Yahua Industrial and Xinjiang Baodi Mining 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.