Correlation Between Inner Mongolia and Western Metal

Can any of the company-specific risk be diversified away by investing in both Inner Mongolia and Western Metal 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 Western Metal 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 Western Metal Materials, you can compare the effects of market volatilities on Inner Mongolia and Western Metal 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 Western Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inner Mongolia and Western Metal.

Diversification Opportunities for Inner Mongolia and Western Metal

0.65

Correlation Coefficient

Inner Mongolia  Western Metal

Poor diversification

The 3 months correlation between Inner and Western is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Western Metal Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Metal Materials 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 Western Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Metal Materials has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Western Metal go up and down completely randomly.

Pair Corralation between Inner Mongolia and Western Metal

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to generate 0.75 times more return on investment than Western Metal. However, Inner Mongolia BaoTou is 1.33 times less risky than Western Metal. It trades about 0.06 of its potential returns per unit of risk. Western Metal Materials is currently generating about 0.03 per unit of risk. If you would invest  141.00  in Inner Mongolia BaoTou on October 5, 2024 and sell it today you would earn a total of  40.00  from holding Inner Mongolia BaoTou or generate 28.37% return on investment over 90 days.

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

Inner Mongolia BaoTou  vs.  Western Metal Materials

Inner Mongolia BaoTou

Risk-Adjusted Performance

0 of 100

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 somewhat strong basic indicators, Inner Mongolia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Western Metal Materials

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Metal may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Inner Mongolia and Western Metal

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

The idea behind Inner Mongolia BaoTou and Western Metal Materials 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.