Correlation Between China Asset and China Nonferrous

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

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

Diversification Opportunities for China Asset and China Nonferrous

-0.08

Correlation Coefficient

China Asset  China Nonferrous

Good diversification

The 3 months correlation between China and China is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding China Asset Management and China Nonferrous Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Nonferrous Metal and China Asset 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 Asset Management are associated (or correlated) with China Nonferrous. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Nonferrous Metal has no effect on the direction of China Asset i.e., China Asset and China Nonferrous go up and down completely randomly.

Pair Corralation between China Asset and China Nonferrous

Assuming the 90 days trading horizon China Asset Management is expected to generate 0.39 times more return on investment than China Nonferrous. However, China Asset Management is 2.54 times less risky than China Nonferrous. It trades about 0.08 of its potential returns per unit of risk. China Nonferrous Metal is currently generating about 0.01 per unit of risk. If you would invest  264.00  in China Asset Management on October 4, 2024 and sell it today you would earn a total of  101.00  from holding China Asset Management or generate 38.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

China Asset Management  vs.  China Nonferrous Metal

China Asset Management

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Asset Management are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Asset sustained solid returns over the last few months and may actually be approaching a breakup point.

China Nonferrous Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Asset and China Nonferrous

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

The idea behind China Asset Management and China Nonferrous Metal 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.