Correlation Between Rising Nonferrous and Inner Mongolia

Can any of the company-specific risk be diversified away by investing in both Rising Nonferrous and Inner Mongolia 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 Rising Nonferrous and Inner Mongolia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rising Nonferrous Metals and Inner Mongolia BaoTou, you can compare the effects of market volatilities on Rising Nonferrous and Inner Mongolia 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 Rising Nonferrous with a short position of Inner Mongolia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rising Nonferrous and Inner Mongolia.

Diversification Opportunities for Rising Nonferrous and Inner Mongolia

0.88

Correlation Coefficient

Rising Nonferrous  Inner Mongolia

Very poor diversification

The 3 months correlation between Rising and Inner is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Rising Nonferrous Metals and Inner Mongolia BaoTou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inner Mongolia BaoTou and Rising Nonferrous 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 Rising Nonferrous Metals are associated (or correlated) with Inner Mongolia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inner Mongolia BaoTou has no effect on the direction of Rising Nonferrous i.e., Rising Nonferrous and Inner Mongolia go up and down completely randomly.

Pair Corralation between Rising Nonferrous and Inner Mongolia

Assuming the 90 days trading horizon Rising Nonferrous Metals is expected to under-perform the Inner Mongolia. But the stock apears to be less risky and, when comparing its historical volatility, Rising Nonferrous Metals is 1.19 times less risky than Inner Mongolia. The stock trades about -0.21 of its potential returns per unit of risk. The Inner Mongolia BaoTou is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  192.00  in Inner Mongolia BaoTou on September 22, 2024 and sell it today you would earn a total of  3.00  from holding Inner Mongolia BaoTou or generate 1.56% return on investment over 90 days.

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

Rising Nonferrous Metals  vs.  Inner Mongolia BaoTou

Rising Nonferrous Metals

Risk-Adjusted Performance

9 of 100

OK

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

Inner Mongolia BaoTou

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia BaoTou are ranked lower than 13 (%) 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.

Pair Trading with Rising Nonferrous and Inner Mongolia

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

The idea behind Rising Nonferrous Metals and Inner Mongolia BaoTou 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.