Correlation Between Anhui Fuhuang and Tianjin Capital

Can any of the company-specific risk be diversified away by investing in both Anhui Fuhuang and Tianjin Capital 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 Anhui Fuhuang and Tianjin Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Anhui Fuhuang Steel and Tianjin Capital Environmental, you can compare the effects of market volatilities on Anhui Fuhuang and Tianjin Capital 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 Anhui Fuhuang with a short position of Tianjin Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anhui Fuhuang and Tianjin Capital.

Diversification Opportunities for Anhui Fuhuang and Tianjin Capital

0.87

Correlation Coefficient

Anhui Fuhuang  Tianjin Capital

Very poor diversification

The 3 months correlation between Anhui and Tianjin is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Fuhuang Steel and Tianjin Capital Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Capital Envi and Anhui Fuhuang 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 Anhui Fuhuang Steel are associated (or correlated) with Tianjin Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Capital Envi has no effect on the direction of Anhui Fuhuang i.e., Anhui Fuhuang and Tianjin Capital go up and down completely randomly.

Pair Corralation between Anhui Fuhuang and Tianjin Capital

Assuming the 90 days trading horizon Anhui Fuhuang Steel is expected to generate 1.84 times more return on investment than Tianjin Capital. However, Anhui Fuhuang is 1.84 times more volatile than Tianjin Capital Environmental. It trades about 0.3 of its potential returns per unit of risk. Tianjin Capital Environmental is currently generating about 0.19 per unit of risk. If you would invest  363.00  in Anhui Fuhuang Steel on September 4, 2024 and sell it today you would earn a total of  340.00  from holding Anhui Fuhuang Steel or generate 93.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

Anhui Fuhuang Steel  vs.  Tianjin Capital Environmental

Anhui Fuhuang Steel

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Fuhuang Steel are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Fuhuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Tianjin Capital Envi

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Anhui Fuhuang and Tianjin Capital

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

The idea behind Anhui Fuhuang Steel and Tianjin Capital Environmental 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.