Correlation Between Tianshan Aluminum and Cathay Biotech

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

Diversification Opportunities for Tianshan Aluminum and Cathay Biotech

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Tianshan and Cathay is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Tianshan Aluminum Group and Cathay Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Biotech 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 Cathay Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Biotech has no effect on the direction of Tianshan Aluminum i.e., Tianshan Aluminum and Cathay Biotech go up and down completely randomly.

Pair Corralation between Tianshan Aluminum and Cathay Biotech

Assuming the 90 days trading horizon Tianshan Aluminum Group is expected to generate 0.92 times more return on investment than Cathay Biotech. However, Tianshan Aluminum Group is 1.08 times less risky than Cathay Biotech. It trades about 0.11 of its potential returns per unit of risk. Cathay Biotech is currently generating about -0.15 per unit of risk. If you would invest  801.00  in Tianshan Aluminum Group on September 23, 2024 and sell it today you would earn a total of  22.00  from holding Tianshan Aluminum Group or generate 2.75% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Tianshan Aluminum Group  vs.  Cathay Biotech

 Performance 
       Timeline  
Tianshan Aluminum 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Tianshan Aluminum Group are ranked lower than 10 (%) 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.
Cathay Biotech 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Biotech are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cathay Biotech sustained solid returns over the last few months and may actually be approaching a breakup point.

Tianshan Aluminum and Cathay Biotech Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tianshan Aluminum and Cathay Biotech

The main advantage of trading using opposite Tianshan Aluminum and Cathay Biotech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tianshan Aluminum position performs unexpectedly, Cathay Biotech 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 Cathay Biotech will offset losses from the drop in Cathay Biotech's long position.
The idea behind Tianshan Aluminum Group and Cathay Biotech 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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