Correlation Between Long Yuan and China Nonferrous

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

By analyzing existing cross correlation between Long Yuan Construction and China Nonferrous Metal, you can compare the effects of market volatilities on Long Yuan and China Nonferrous 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 Long Yuan with a short position of China Nonferrous. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Yuan and China Nonferrous.

Diversification Opportunities for Long Yuan and China Nonferrous

0.85

Correlation Coefficient

Long Yuan  China Nonferrous

Very poor diversification

The 3 months correlation between Long and China is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Long Yuan Construction and China Nonferrous Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Nonferrous Metal and Long Yuan 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 Long Yuan Construction are associated (or correlated) with China Nonferrous. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Nonferrous Metal has no effect on the direction of Long Yuan i.e., Long Yuan and China Nonferrous go up and down completely randomly.

Pair Corralation between Long Yuan and China Nonferrous

Assuming the 90 days trading horizon Long Yuan Construction is expected to under-perform the China Nonferrous. In addition to that, Long Yuan is 1.78 times more volatile than China Nonferrous Metal. It trades about -0.04 of its total potential returns per unit of risk. China Nonferrous Metal is currently generating about -0.06 per unit of volatility. If you would invest  503.00  in China Nonferrous Metal on October 25, 2024 and sell it today you would lose (11.00) from holding China Nonferrous Metal or give up 2.19% of portfolio value over 90 days.

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

Long Yuan Construction  vs.  China Nonferrous Metal

Long Yuan Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Nonferrous Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Long Yuan and China Nonferrous

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

The idea behind Long Yuan Construction and China Nonferrous Metal 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.