Correlation Between China National and Chengtun Mining

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

By analyzing existing cross correlation between China National Software and Chengtun Mining Group, you can compare the effects of market volatilities on China National and Chengtun Mining 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 China National with a short position of Chengtun Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of China National and Chengtun Mining.

Diversification Opportunities for China National and Chengtun Mining

0.78

Correlation Coefficient

China National  Chengtun Mining

Poor diversification

The 3 months correlation between China and Chengtun is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding China National Software and Chengtun Mining Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengtun Mining Group and China National 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 China National Software are associated (or correlated) with Chengtun Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengtun Mining Group has no effect on the direction of China National i.e., China National and Chengtun Mining go up and down completely randomly.

Pair Corralation between China National and Chengtun Mining

Assuming the 90 days trading horizon China National Software is expected to generate 1.29 times more return on investment than Chengtun Mining. However, China National is 1.29 times more volatile than Chengtun Mining Group. It trades about 0.02 of its potential returns per unit of risk. Chengtun Mining Group is currently generating about -0.01 per unit of risk. If you would invest  4,485  in China National Software on September 20, 2024 and sell it today you would earn a total of  571.00  from holding China National Software or generate 12.73% return on investment over 90 days.

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

China National Software  vs.  Chengtun Mining Group

China National Software

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China National Software are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China National sustained solid returns over the last few months and may actually be approaching a breakup point.

Chengtun Mining Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chengtun Mining Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengtun Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China National and Chengtun Mining

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

The idea behind China National Software and Chengtun Mining Group 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.