Correlation Between Inner Mongolia and Kangxin New

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

Diversification Opportunities for Inner Mongolia and Kangxin New

0.9

Correlation Coefficient

Inner Mongolia  Kangxin New

Almost no diversification

The 3 months correlation between Inner and Kangxin is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Kangxin New Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kangxin 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 Kangxin New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kangxin New Materials has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Kangxin New go up and down completely randomly.

Pair Corralation between Inner Mongolia and Kangxin New

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to under-perform the Kangxin New. But the stock apears to be less risky and, when comparing its historical volatility, Inner Mongolia BaoTou is 1.98 times less risky than Kangxin New. The stock trades about -0.08 of its potential returns per unit of risk. The Kangxin New Materials is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  261.00  in Kangxin New Materials on December 1, 2024 and sell it today you would lose (14.00) from holding Kangxin New Materials or give up 5.36% of portfolio value over 90 days.

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

Inner Mongolia BaoTou  vs.  Kangxin New Materials

Inner Mongolia BaoTou

Risk-Adjusted Performance

Very Weak

Over the last 90 days Inner Mongolia BaoTou has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Kangxin New Materials

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Inner Mongolia BaoTou and Kangxin 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.