Correlation Between Inner Mongolia and Fushun Special

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

Diversification Opportunities for Inner Mongolia and Fushun Special

0.74

Correlation Coefficient

Inner Mongolia  Fushun Special

Poor diversification

The 3 months correlation between Inner and Fushun is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Fushun Special Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fushun Special Steel 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 Fushun Special. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fushun Special Steel has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Fushun Special go up and down completely randomly.

Pair Corralation between Inner Mongolia and Fushun Special

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to generate 0.94 times more return on investment than Fushun Special. However, Inner Mongolia BaoTou is 1.06 times less risky than Fushun Special. It trades about 0.21 of its potential returns per unit of risk. Fushun Special Steel is currently generating about 0.14 per unit of risk. If you would invest  139.00  in Inner Mongolia BaoTou on September 13, 2024 and sell it today you would earn a total of  67.00  from holding Inner Mongolia BaoTou or generate 48.2% return on investment over 90 days.

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

Inner Mongolia BaoTou  vs.  Fushun Special Steel

Inner Mongolia BaoTou

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia BaoTou are ranked lower than 16 (%) 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.

Fushun Special Steel

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fushun Special Steel are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fushun Special sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Inner Mongolia and Fushun Special

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

The idea behind Inner Mongolia BaoTou and Fushun Special Steel 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.