Correlation Between Inner Mongolia and Lier Chemical

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

Diversification Opportunities for Inner Mongolia and Lier Chemical

0.77

Correlation Coefficient

Inner Mongolia  Lier Chemical

Poor diversification

The 3 months correlation between Inner and Lier is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Lier Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lier Chemical 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 Lier Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lier Chemical has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Lier Chemical go up and down completely randomly.

Pair Corralation between Inner Mongolia and Lier Chemical

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to generate 0.88 times more return on investment than Lier Chemical. However, Inner Mongolia BaoTou is 1.14 times less risky than Lier Chemical. It trades about -0.08 of its potential returns per unit of risk. Lier Chemical Co is currently generating about -0.08 per unit of risk. If you would invest  192.00  in Inner Mongolia BaoTou on October 22, 2024 and sell it today you would lose (12.00) from holding Inner Mongolia BaoTou or give up 6.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.67%
Values	Daily Returns

Inner Mongolia BaoTou  vs.  Lier Chemical Co

Inner Mongolia BaoTou

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia BaoTou are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Inner Mongolia may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Lier Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lier Chemical Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lier Chemical 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 Lier Chemical

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

The idea behind Inner Mongolia BaoTou and Lier Chemical Co 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.