Correlation Between Inner Mongolia and Heilongjiang Transport

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

Diversification Opportunities for Inner Mongolia and Heilongjiang Transport

0.9

Correlation Coefficient

Inner Mongolia  Heilongjiang Transport

Almost no diversification

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

Pair Corralation between Inner Mongolia and Heilongjiang Transport

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to generate 1.23 times more return on investment than Heilongjiang Transport. However, Inner Mongolia is 1.23 times more volatile than Heilongjiang Transport Development. It trades about 0.17 of its potential returns per unit of risk. Heilongjiang Transport Development is currently generating about 0.16 per unit of risk. If you would invest  140.00  in Inner Mongolia BaoTou on September 22, 2024 and sell it today you would earn a total of  55.00  from holding Inner Mongolia BaoTou or generate 39.29% return on investment over 90 days.

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

Inner Mongolia BaoTou  vs.  Heilongjiang Transport Develop

Inner Mongolia BaoTou

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia BaoTou are ranked lower than 13 (%) 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.

Heilongjiang Transport

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heilongjiang Transport Development are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Heilongjiang Transport sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Inner Mongolia and Heilongjiang Transport

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

The idea behind Inner Mongolia BaoTou and Heilongjiang Transport Development 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.