Correlation Between Inner Mongolia and Jiangsu Baoli

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

Diversification Opportunities for Inner Mongolia and Jiangsu Baoli

0.89

Correlation Coefficient

Inner Mongolia  Jiangsu Baoli

Very poor diversification

The 3 months correlation between Inner and Jiangsu is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Jiangsu Baoli Asphalt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Baoli Asphalt 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 Jiangsu Baoli. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Baoli Asphalt has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Jiangsu Baoli go up and down completely randomly.

Pair Corralation between Inner Mongolia and Jiangsu Baoli

Assuming the 90 days trading horizon Inner Mongolia is expected to generate 2.28 times less return on investment than Jiangsu Baoli. But when comparing it to its historical volatility, Inner Mongolia BaoTou is 1.86 times less risky than Jiangsu Baoli. It trades about 0.18 of its potential returns per unit of risk. Jiangsu Baoli Asphalt is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  255.00  in Jiangsu Baoli Asphalt on September 5, 2024 and sell it today you would earn a total of  255.00  from holding Jiangsu Baoli Asphalt or generate 100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

Inner Mongolia BaoTou  vs.  Jiangsu Baoli Asphalt

Inner Mongolia BaoTou

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia BaoTou are ranked lower than 14 (%) 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.

Jiangsu Baoli Asphalt

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangsu Baoli Asphalt are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangsu Baoli sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Inner Mongolia and Jiangsu Baoli

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

The idea behind Inner Mongolia BaoTou and Jiangsu Baoli Asphalt 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.