Correlation Between Inner Mongolia and GEM

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

Diversification Opportunities for Inner Mongolia and GEM

0.7

Correlation Coefficient

Inner Mongolia  GEM

Poor diversification

The 3 months correlation between Inner and GEM is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and GEM Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEM Co 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 GEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEM Co has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and GEM go up and down completely randomly.

Pair Corralation between Inner Mongolia and GEM

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to generate 1.94 times more return on investment than GEM. However, Inner Mongolia is 1.94 times more volatile than GEM Co. It trades about -0.08 of its potential returns per unit of risk. GEM Co is currently generating about -0.23 per unit of risk. If you would invest  196.00  in Inner Mongolia BaoTou on September 27, 2024 and sell it today you would lose (7.00) from holding Inner Mongolia BaoTou or give up 3.57% 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.  GEM Co

Inner Mongolia BaoTou

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia BaoTou are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Inner Mongolia sustained solid returns over the last few months and may actually be approaching a breakup point.

GEM Co

Risk-Adjusted Performance

1 of 100

Weak

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

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

The idea behind Inner Mongolia BaoTou and GEM 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.

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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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.