Correlation Between Inner Mongolia and Liaoning Dingjide

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

Diversification Opportunities for Inner Mongolia and Liaoning Dingjide

0.81

Correlation Coefficient

Inner Mongolia  Liaoning Dingjide

Very poor diversification

The 3 months correlation between Inner and Liaoning is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Liaoning Dingjide Petrochemica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Dingjide 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 Liaoning Dingjide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Dingjide has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Liaoning Dingjide go up and down completely randomly.

Pair Corralation between Inner Mongolia and Liaoning Dingjide

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to under-perform the Liaoning Dingjide. But the stock apears to be less risky and, when comparing its historical volatility, Inner Mongolia BaoTou is 1.37 times less risky than Liaoning Dingjide. The stock trades about -0.11 of its potential returns per unit of risk. The Liaoning Dingjide Petrochemical is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,063  in Liaoning Dingjide Petrochemical on September 25, 2024 and sell it today you would earn a total of  149.00  from holding Liaoning Dingjide Petrochemical or generate 4.86% 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.  Liaoning Dingjide Petrochemica

Inner Mongolia BaoTou

Risk-Adjusted Performance

10 of 100

Good

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.

Liaoning Dingjide

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Dingjide Petrochemical are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liaoning Dingjide sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Inner Mongolia and Liaoning Dingjide

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

The idea behind Inner Mongolia BaoTou and Liaoning Dingjide Petrochemical 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 Stocks Directory module to find actively traded stocks across global markets.