Correlation Between Baoshan Iron and Lingyuan Iron

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

Diversification Opportunities for Baoshan Iron and Lingyuan Iron

0.24

Correlation Coefficient

Baoshan Iron  Lingyuan Iron

Modest diversification

The 3 months correlation between Baoshan and Lingyuan is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Baoshan Iron Steel and Lingyuan Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lingyuan Iron Steel 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 Lingyuan Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lingyuan Iron Steel has no effect on the direction of Baoshan Iron i.e., Baoshan Iron and Lingyuan Iron go up and down completely randomly.

Pair Corralation between Baoshan Iron and Lingyuan Iron

Assuming the 90 days trading horizon Baoshan Iron Steel is expected to generate 0.67 times more return on investment than Lingyuan Iron. However, Baoshan Iron Steel is 1.48 times less risky than Lingyuan Iron. It trades about 0.05 of its potential returns per unit of risk. Lingyuan Iron Steel is currently generating about -0.09 per unit of risk. If you would invest  678.00  in Baoshan Iron Steel on December 1, 2024 and sell it today you would earn a total of  30.00  from holding Baoshan Iron Steel or generate 4.42% return on investment over 90 days.

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

Baoshan Iron Steel  vs.  Lingyuan Iron Steel

Baoshan Iron Steel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Baoshan Iron Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Baoshan Iron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Lingyuan Iron Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lingyuan Iron Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Baoshan Iron and Lingyuan Iron

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

The idea behind Baoshan Iron Steel and Lingyuan Iron Steel 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.