Correlation Between Inner Mongolia and Xinjiang Zhongtai

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

By analyzing existing cross correlation between Inner Mongolia BaoTou and Xinjiang Zhongtai Chemical, you can compare the effects of market volatilities on Inner Mongolia and Xinjiang Zhongtai 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 Inner Mongolia with a short position of Xinjiang Zhongtai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inner Mongolia and Xinjiang Zhongtai.

Diversification Opportunities for Inner Mongolia and Xinjiang Zhongtai

0.63

Correlation Coefficient

Inner Mongolia  Xinjiang Zhongtai

Poor diversification

The 3 months correlation between Inner and Xinjiang is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Xinjiang Zhongtai Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Zhongtai and Inner Mongolia 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 Inner Mongolia BaoTou are associated (or correlated) with Xinjiang Zhongtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Zhongtai has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Xinjiang Zhongtai go up and down completely randomly.

Pair Corralation between Inner Mongolia and Xinjiang Zhongtai

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to under-perform the Xinjiang Zhongtai. In addition to that, Inner Mongolia is 1.4 times more volatile than Xinjiang Zhongtai Chemical. It trades about -0.08 of its total potential returns per unit of risk. Xinjiang Zhongtai Chemical is currently generating about -0.06 per unit of volatility. If you would invest  473.00  in Xinjiang Zhongtai Chemical on December 2, 2024 and sell it today you would lose (23.00) from holding Xinjiang Zhongtai Chemical or give up 4.86% of portfolio value over 90 days.

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

Inner Mongolia BaoTou  vs.  Xinjiang Zhongtai Chemical

Inner Mongolia BaoTou

Risk-Adjusted Performance

Very Weak

Over the last 90 days Inner Mongolia BaoTou has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Xinjiang Zhongtai

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Inner Mongolia and Xinjiang Zhongtai

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

The idea behind Inner Mongolia BaoTou and Xinjiang Zhongtai Chemical 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.