Correlation Between Inner Mongolia and Nantong Jiangshan

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

Diversification Opportunities for Inner Mongolia and Nantong Jiangshan

0.79

Correlation Coefficient

Inner Mongolia  Nantong Jiangshan

Poor diversification

The 3 months correlation between Inner and Nantong is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Nantong Jiangshan Agrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nantong Jiangshan 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 Nantong Jiangshan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nantong Jiangshan has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Nantong Jiangshan go up and down completely randomly.

Pair Corralation between Inner Mongolia and Nantong Jiangshan

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to generate 0.75 times more return on investment than Nantong Jiangshan. However, Inner Mongolia BaoTou is 1.33 times less risky than Nantong Jiangshan. It trades about 0.0 of its potential returns per unit of risk. Nantong Jiangshan Agrochemical is currently generating about -0.06 per unit of risk. If you would invest  193.00  in Inner Mongolia BaoTou on October 7, 2024 and sell it today you would lose (15.00) from holding Inner Mongolia BaoTou or give up 7.77% 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.  Nantong Jiangshan Agrochemical

Inner Mongolia BaoTou

Risk-Adjusted Performance

0 of 100

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 somewhat strong basic indicators, Inner Mongolia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nantong Jiangshan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nantong Jiangshan Agrochemical 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.

Pair Trading with Inner Mongolia and Nantong Jiangshan

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

The idea behind Inner Mongolia BaoTou and Nantong Jiangshan Agrochemical 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.