Correlation Between Inner Mongolia and Pengxin International

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

Diversification Opportunities for Inner Mongolia and Pengxin International

0.8

Correlation Coefficient

Inner Mongolia  Pengxin International

Very poor diversification

The 3 months correlation between Inner and Pengxin is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Pengxin International Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pengxin International 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 Pengxin International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pengxin International has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Pengxin International go up and down completely randomly.

Pair Corralation between Inner Mongolia and Pengxin International

Assuming the 90 days trading horizon Inner Mongolia is expected to generate 2.4 times less return on investment than Pengxin International. But when comparing it to its historical volatility, Inner Mongolia BaoTou is 1.61 times less risky than Pengxin International. It trades about 0.03 of its potential returns per unit of risk. Pengxin International Mining is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  313.00  in Pengxin International Mining on September 26, 2024 and sell it today you would earn a total of  90.00  from holding Pengxin International Mining or generate 28.75% return on investment over 90 days.

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

Inner Mongolia BaoTou  vs.  Pengxin International Mining

Inner Mongolia BaoTou

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia BaoTou are ranked lower than 10 (%) 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.

Pengxin International

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pengxin International Mining are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pengxin International sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Inner Mongolia and Pengxin International

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

The idea behind Inner Mongolia BaoTou and Pengxin International Mining 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.