Correlation Between China Metal and Cayman Tung

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

By analyzing existing cross correlation between China Metal Products and Cayman Tung Ling, you can compare the effects of market volatilities on China Metal and Cayman Tung 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 China Metal with a short position of Cayman Tung. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Metal and Cayman Tung.

Diversification Opportunities for China Metal and Cayman Tung

0.26

Correlation Coefficient

China Metal  Cayman Tung

Modest diversification

The 3 months correlation between China and Cayman is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding China Metal Products and Cayman Tung Ling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cayman Tung Ling and China Metal 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 China Metal Products are associated (or correlated) with Cayman Tung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cayman Tung Ling has no effect on the direction of China Metal i.e., China Metal and Cayman Tung go up and down completely randomly.

Pair Corralation between China Metal and Cayman Tung

Assuming the 90 days trading horizon China Metal Products is expected to under-perform the Cayman Tung. But the stock apears to be less risky and, when comparing its historical volatility, China Metal Products is 2.16 times less risky than Cayman Tung. The stock trades about -0.02 of its potential returns per unit of risk. The Cayman Tung Ling is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,700  in Cayman Tung Ling on December 23, 2024 and sell it today you would earn a total of  400.00  from holding Cayman Tung Ling or generate 14.81% return on investment over 90 days.

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

China Metal Products  vs.  Cayman Tung Ling

China Metal Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Metal Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, China Metal is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Cayman Tung Ling

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cayman Tung Ling are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cayman Tung showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Metal and Cayman Tung

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

The idea behind China Metal Products and Cayman Tung Ling 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.