Correlation Between Tongxing Environmental and China Molybdenum

Can any of the company-specific risk be diversified away by investing in both Tongxing Environmental and China Molybdenum 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 Tongxing Environmental and China Molybdenum into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tongxing Environmental Protection and China Molybdenum Co, you can compare the effects of market volatilities on Tongxing Environmental and China Molybdenum 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 Tongxing Environmental with a short position of China Molybdenum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tongxing Environmental and China Molybdenum.

Diversification Opportunities for Tongxing Environmental and China Molybdenum

0.38

Correlation Coefficient

Tongxing Environmental  China Molybdenum

Weak diversification

The 3 months correlation between Tongxing and China is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Tongxing Environmental Protect and China Molybdenum Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Molybdenum and Tongxing Environmental 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 Tongxing Environmental Protection are associated (or correlated) with China Molybdenum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Molybdenum has no effect on the direction of Tongxing Environmental i.e., Tongxing Environmental and China Molybdenum go up and down completely randomly.

Pair Corralation between Tongxing Environmental and China Molybdenum

Assuming the 90 days trading horizon Tongxing Environmental Protection is expected to under-perform the China Molybdenum. But the stock apears to be less risky and, when comparing its historical volatility, Tongxing Environmental Protection is 1.15 times less risky than China Molybdenum. The stock trades about -0.01 of its potential returns per unit of risk. The China Molybdenum Co is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  695.00  in China Molybdenum Co on December 26, 2024 and sell it today you would earn a total of  113.00  from holding China Molybdenum Co or generate 16.26% return on investment over 90 days.

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

Tongxing Environmental Protect  vs.  China Molybdenum Co

Tongxing Environmental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tongxing Environmental Protection has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tongxing Environmental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Molybdenum

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Molybdenum Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Molybdenum sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tongxing Environmental and China Molybdenum

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

The idea behind Tongxing Environmental Protection and China Molybdenum Co 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.