Correlation Between Inner Mongolia and Wankai New

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

Diversification Opportunities for Inner Mongolia and Wankai New

0.69

Correlation Coefficient

Inner Mongolia  Wankai New

Poor diversification

The 3 months correlation between Inner and Wankai is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Wankai New Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wankai New 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 Wankai New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wankai New Materials has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Wankai New go up and down completely randomly.

Pair Corralation between Inner Mongolia and Wankai New

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to generate 1.14 times more return on investment than Wankai New. However, Inner Mongolia is 1.14 times more volatile than Wankai New Materials. It trades about 0.17 of its potential returns per unit of risk. Wankai New Materials is currently generating about 0.1 per unit of risk. If you would invest  140.00  in Inner Mongolia BaoTou on September 23, 2024 and sell it today you would earn a total of  55.00  from holding Inner Mongolia BaoTou or generate 39.29% 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.  Wankai New Materials

Inner Mongolia BaoTou

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia BaoTou are ranked lower than 13 (%) 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.

Wankai New Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wankai New Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wankai New sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Inner Mongolia and Wankai New

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

The idea behind Inner Mongolia BaoTou and Wankai New 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.