Correlation Between Tianshan Aluminum and Tonghua Grape

Can any of the company-specific risk be diversified away by investing in both Tianshan Aluminum and Tonghua Grape 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 Tianshan Aluminum and Tonghua Grape into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tianshan Aluminum Group and Tonghua Grape Wine, you can compare the effects of market volatilities on Tianshan Aluminum and Tonghua Grape 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 Tianshan Aluminum with a short position of Tonghua Grape. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tianshan Aluminum and Tonghua Grape.

Diversification Opportunities for Tianshan Aluminum and Tonghua Grape

0.72

Correlation Coefficient

Tianshan Aluminum  Tonghua Grape

Poor diversification

The 3 months correlation between Tianshan and Tonghua is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Tianshan Aluminum Group and Tonghua Grape Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tonghua Grape Wine and Tianshan Aluminum 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 Tianshan Aluminum Group are associated (or correlated) with Tonghua Grape. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tonghua Grape Wine has no effect on the direction of Tianshan Aluminum i.e., Tianshan Aluminum and Tonghua Grape go up and down completely randomly.

Pair Corralation between Tianshan Aluminum and Tonghua Grape

Assuming the 90 days trading horizon Tianshan Aluminum is expected to generate 2.55 times less return on investment than Tonghua Grape. But when comparing it to its historical volatility, Tianshan Aluminum Group is 1.11 times less risky than Tonghua Grape. It trades about 0.03 of its potential returns per unit of risk. Tonghua Grape Wine is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  285.00  in Tonghua Grape Wine on September 19, 2024 and sell it today you would earn a total of  7.00  from holding Tonghua Grape Wine or generate 2.46% return on investment over 90 days.

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

Tianshan Aluminum Group  vs.  Tonghua Grape Wine

Tianshan Aluminum

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tianshan Aluminum Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianshan Aluminum sustained solid returns over the last few months and may actually be approaching a breakup point.

Tonghua Grape Wine

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Tianshan Aluminum and Tonghua Grape

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

The idea behind Tianshan Aluminum Group and Tonghua Grape Wine 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.