Correlation Between Inner Mongolia and Sichuan Tianqi

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

Diversification Opportunities for Inner Mongolia and Sichuan Tianqi

0.54

Correlation Coefficient

Inner Mongolia  Sichuan Tianqi

Very weak diversification

The 3 months correlation between Inner and Sichuan is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Sichuan Tianqi Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Tianqi Lithium 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 Sichuan Tianqi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Tianqi Lithium has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Sichuan Tianqi go up and down completely randomly.

Pair Corralation between Inner Mongolia and Sichuan Tianqi

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to generate 0.96 times more return on investment than Sichuan Tianqi. However, Inner Mongolia BaoTou is 1.04 times less risky than Sichuan Tianqi. It trades about 0.08 of its potential returns per unit of risk. Sichuan Tianqi Lithium is currently generating about 0.01 per unit of risk. If you would invest  161.00  in Inner Mongolia BaoTou on October 21, 2024 and sell it today you would earn a total of  21.00  from holding Inner Mongolia BaoTou or generate 13.04% return on investment over 90 days.

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

Inner Mongolia BaoTou  vs.  Sichuan Tianqi Lithium

Inner Mongolia BaoTou

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia BaoTou are ranked lower than 6 (%) 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.

Sichuan Tianqi Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sichuan Tianqi Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sichuan Tianqi 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 Sichuan Tianqi

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

The idea behind Inner Mongolia BaoTou and Sichuan Tianqi Lithium 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 Global Correlations module to find global opportunities by holding instruments from different markets.