Correlation Between Metro Investment and Huaibei Mining

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

By analyzing existing cross correlation between Metro Investment Development and Huaibei Mining Holdings, you can compare the effects of market volatilities on Metro Investment and Huaibei 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 Metro Investment with a short position of Huaibei Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metro Investment and Huaibei Mining.

Diversification Opportunities for Metro Investment and Huaibei Mining

0.6

Correlation Coefficient

Metro Investment  Huaibei Mining

Poor diversification

The 3 months correlation between Metro and Huaibei is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Metro Investment Development and Huaibei Mining Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaibei Mining Holdings and Metro Investment 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 Metro Investment Development are associated (or correlated) with Huaibei Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaibei Mining Holdings has no effect on the direction of Metro Investment i.e., Metro Investment and Huaibei Mining go up and down completely randomly.

Pair Corralation between Metro Investment and Huaibei Mining

Assuming the 90 days trading horizon Metro Investment Development is expected to generate 1.25 times more return on investment than Huaibei Mining. However, Metro Investment is 1.25 times more volatile than Huaibei Mining Holdings. It trades about 0.11 of its potential returns per unit of risk. Huaibei Mining Holdings is currently generating about 0.06 per unit of risk. If you would invest  385.00  in Metro Investment Development on September 17, 2024 and sell it today you would earn a total of  80.00  from holding Metro Investment Development or generate 20.78% return on investment over 90 days.

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

Metro Investment Development  vs.  Huaibei Mining Holdings

Metro Investment Dev

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Investment Development are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Metro Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Huaibei Mining Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Huaibei Mining Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huaibei Mining may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Metro Investment and Huaibei Mining

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

The idea behind Metro Investment Development and Huaibei Mining Holdings 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.