Correlation Between Baoshan Iron and Yunnan Copper

Can any of the company-specific risk be diversified away by investing in both Baoshan Iron and Yunnan Copper 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 Baoshan Iron and Yunnan Copper into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Baoshan Iron Steel and Yunnan Copper Co, you can compare the effects of market volatilities on Baoshan Iron and Yunnan Copper 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 Baoshan Iron with a short position of Yunnan Copper. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baoshan Iron and Yunnan Copper.

Diversification Opportunities for Baoshan Iron and Yunnan Copper

0.89

Correlation Coefficient

Baoshan Iron  Yunnan Copper

Very poor diversification

The 3 months correlation between Baoshan and Yunnan is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Baoshan Iron Steel and Yunnan Copper Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yunnan Copper and Baoshan Iron 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 Baoshan Iron Steel are associated (or correlated) with Yunnan Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yunnan Copper has no effect on the direction of Baoshan Iron i.e., Baoshan Iron and Yunnan Copper go up and down completely randomly.

Pair Corralation between Baoshan Iron and Yunnan Copper

Assuming the 90 days trading horizon Baoshan Iron is expected to generate 1.06 times less return on investment than Yunnan Copper. In addition to that, Baoshan Iron is 1.11 times more volatile than Yunnan Copper Co. It trades about 0.14 of its total potential returns per unit of risk. Yunnan Copper Co is currently generating about 0.17 per unit of volatility. If you would invest  1,086  in Yunnan Copper Co on September 14, 2024 and sell it today you would earn a total of  244.00  from holding Yunnan Copper Co or generate 22.47% return on investment over 90 days.

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

Baoshan Iron Steel  vs.  Yunnan Copper Co

Baoshan Iron Steel

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Baoshan Iron Steel are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Baoshan Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

Yunnan Copper

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yunnan Copper Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yunnan Copper sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baoshan Iron and Yunnan Copper

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

The idea behind Baoshan Iron Steel and Yunnan Copper Co 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.