Correlation Between Zhejiang Yayi and Tianshan Aluminum

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

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

Diversification Opportunities for Zhejiang Yayi and Tianshan Aluminum

0.84

Correlation Coefficient

Zhejiang Yayi  Tianshan Aluminum

Very poor diversification

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

Pair Corralation between Zhejiang Yayi and Tianshan Aluminum

Assuming the 90 days trading horizon Zhejiang Yayi Metal is expected to generate 1.49 times more return on investment than Tianshan Aluminum. However, Zhejiang Yayi is 1.49 times more volatile than Tianshan Aluminum Group. It trades about 0.11 of its potential returns per unit of risk. Tianshan Aluminum Group is currently generating about 0.09 per unit of risk. If you would invest  1,926  in Zhejiang Yayi Metal on September 25, 2024 and sell it today you would earn a total of  513.00  from holding Zhejiang Yayi Metal or generate 26.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Zhejiang Yayi Metal  vs.  Tianshan Aluminum Group

Zhejiang Yayi Metal

Risk-Adjusted Performance

8 of 100

OK

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

Tianshan Aluminum

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tianshan Aluminum Group are ranked lower than 7 (%) 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.

Pair Trading with Zhejiang Yayi and Tianshan Aluminum

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

The idea behind Zhejiang Yayi Metal and Tianshan Aluminum Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.