Correlation Between Zhejiang Yayi and Chongqing Shunbo

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

Diversification Opportunities for Zhejiang Yayi and Chongqing Shunbo

0.92

Correlation Coefficient

Zhejiang Yayi  Chongqing Shunbo

Almost no diversification

The 3 months correlation between Zhejiang and Chongqing is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Yayi Metal and Chongqing Shunbo Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Shunbo 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 Chongqing Shunbo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Shunbo Aluminum has no effect on the direction of Zhejiang Yayi i.e., Zhejiang Yayi and Chongqing Shunbo go up and down completely randomly.

Pair Corralation between Zhejiang Yayi and Chongqing Shunbo

Assuming the 90 days trading horizon Zhejiang Yayi Metal is expected to under-perform the Chongqing Shunbo. In addition to that, Zhejiang Yayi is 1.87 times more volatile than Chongqing Shunbo Aluminum. It trades about -0.05 of its total potential returns per unit of risk. Chongqing Shunbo Aluminum is currently generating about -0.02 per unit of volatility. If you would invest  671.00  in Chongqing Shunbo Aluminum on September 25, 2024 and sell it today you would lose (10.00) from holding Chongqing Shunbo Aluminum or give up 1.49% of portfolio value over 90 days.

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

Zhejiang Yayi Metal  vs.  Chongqing Shunbo Aluminum

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.

Chongqing Shunbo Aluminum

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Shunbo Aluminum are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Shunbo sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhejiang Yayi and Chongqing Shunbo

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

The idea behind Zhejiang Yayi Metal and Chongqing Shunbo Aluminum 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.