Correlation Between Baoshan Iron and Anhui Jinhe

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

Diversification Opportunities for Baoshan Iron and Anhui Jinhe

0.51

Correlation Coefficient

Baoshan Iron  Anhui Jinhe

Very weak diversification

The 3 months correlation between Baoshan and Anhui is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Baoshan Iron Steel and Anhui Jinhe Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Jinhe 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 Anhui Jinhe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Jinhe Industrial has no effect on the direction of Baoshan Iron i.e., Baoshan Iron and Anhui Jinhe go up and down completely randomly.

Pair Corralation between Baoshan Iron and Anhui Jinhe

Assuming the 90 days trading horizon Baoshan Iron is expected to generate 1.79 times less return on investment than Anhui Jinhe. But when comparing it to its historical volatility, Baoshan Iron Steel is 1.26 times less risky than Anhui Jinhe. It trades about 0.07 of its potential returns per unit of risk. Anhui Jinhe Industrial is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,351  in Anhui Jinhe Industrial on December 27, 2024 and sell it today you would earn a total of  249.00  from holding Anhui Jinhe Industrial or generate 10.59% return on investment over 90 days.

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

Baoshan Iron Steel  vs.  Anhui Jinhe Industrial

Baoshan Iron Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Baoshan Iron Steel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Baoshan Iron may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Anhui Jinhe Industrial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Jinhe Industrial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Jinhe may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Baoshan Iron and Anhui Jinhe

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

The idea behind Baoshan Iron Steel and Anhui Jinhe 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.