Correlation Between Inner Mongolia and Anyang Iron

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

Diversification Opportunities for Inner Mongolia and Anyang Iron

0.85

Correlation Coefficient

Inner Mongolia  Anyang Iron

Very poor diversification

The 3 months correlation between Inner and Anyang is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Anyang Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anyang Iron 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 Anyang Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anyang Iron Steel has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Anyang Iron go up and down completely randomly.

Pair Corralation between Inner Mongolia and Anyang Iron

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to under-perform the Anyang Iron. But the stock apears to be less risky and, when comparing its historical volatility, Inner Mongolia BaoTou is 2.6 times less risky than Anyang Iron. The stock trades about -0.04 of its potential returns per unit of risk. The Anyang Iron Steel is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  184.00  in Anyang Iron Steel on September 28, 2024 and sell it today you would earn a total of  11.00  from holding Anyang Iron Steel or generate 5.98% 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.  Anyang Iron Steel

Inner Mongolia BaoTou

Risk-Adjusted Performance

4 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia BaoTou are ranked lower than 4 (%) 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.

Anyang Iron Steel

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Anyang Iron Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anyang Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Inner Mongolia and Anyang Iron

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

The idea behind Inner Mongolia BaoTou and Anyang Iron 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.