Correlation Between Baoshan Iron and Hunan Nanling

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

Diversification Opportunities for Baoshan Iron and Hunan Nanling

0.8

Correlation Coefficient

Baoshan Iron  Hunan Nanling

Very poor diversification

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

Pair Corralation between Baoshan Iron and Hunan Nanling

Assuming the 90 days trading horizon Baoshan Iron Steel is expected to generate 0.7 times more return on investment than Hunan Nanling. However, Baoshan Iron Steel is 1.43 times less risky than Hunan Nanling. It trades about 0.03 of its potential returns per unit of risk. Hunan Nanling Industrial is currently generating about 0.01 per unit of risk. If you would invest  571.00  in Baoshan Iron Steel on September 3, 2024 and sell it today you would earn a total of  91.00  from holding Baoshan Iron Steel or generate 15.94% return on investment over 90 days.

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

Baoshan Iron Steel  vs.  Hunan Nanling Industrial

Baoshan Iron Steel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baoshan Iron Steel are ranked lower than 8 (%) 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.

Hunan Nanling Industrial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Nanling Industrial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hunan Nanling is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Baoshan Iron and Hunan Nanling

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

The idea behind Baoshan Iron Steel and Hunan Nanling Industrial 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.