Correlation Between Rising Nonferrous and Sanxiang Advanced

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

Diversification Opportunities for Rising Nonferrous and Sanxiang Advanced

0.73

Correlation Coefficient

Rising Nonferrous  Sanxiang Advanced

Poor diversification

The 3 months correlation between Rising and Sanxiang is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Rising Nonferrous Metals and Sanxiang Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sanxiang Advanced 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 Sanxiang Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sanxiang Advanced has no effect on the direction of Rising Nonferrous i.e., Rising Nonferrous and Sanxiang Advanced go up and down completely randomly.

Pair Corralation between Rising Nonferrous and Sanxiang Advanced

Assuming the 90 days trading horizon Rising Nonferrous is expected to generate 2.07 times less return on investment than Sanxiang Advanced. In addition to that, Rising Nonferrous is 1.02 times more volatile than Sanxiang Advanced Materials. It trades about 0.07 of its total potential returns per unit of risk. Sanxiang Advanced Materials is currently generating about 0.15 per unit of volatility. If you would invest  1,600  in Sanxiang Advanced Materials on October 26, 2024 and sell it today you would earn a total of  123.00  from holding Sanxiang Advanced Materials or generate 7.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Rising Nonferrous Metals  vs.  Sanxiang Advanced Materials

Rising Nonferrous Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rising Nonferrous Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Rising Nonferrous is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sanxiang Advanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sanxiang Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sanxiang Advanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rising Nonferrous and Sanxiang Advanced

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

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