Correlation Between HeBei Jinniu and Chongqing Shunbo

Can any of the company-specific risk be diversified away by investing in both HeBei Jinniu and Chongqing Shunbo 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 HeBei Jinniu and Chongqing Shunbo into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HeBei Jinniu Chemical and Chongqing Shunbo Aluminum, you can compare the effects of market volatilities on HeBei Jinniu and Chongqing Shunbo 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 HeBei Jinniu with a short position of Chongqing Shunbo. Check out your portfolio center. Please also check ongoing floating volatility patterns of HeBei Jinniu and Chongqing Shunbo.

Diversification Opportunities for HeBei Jinniu and Chongqing Shunbo

0.86

Correlation Coefficient

HeBei Jinniu  Chongqing Shunbo

Very poor diversification

The 3 months correlation between HeBei and Chongqing is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding HeBei Jinniu Chemical and Chongqing Shunbo Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Shunbo Aluminum and HeBei Jinniu 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 HeBei Jinniu Chemical are associated (or correlated) with Chongqing Shunbo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Shunbo Aluminum has no effect on the direction of HeBei Jinniu i.e., HeBei Jinniu and Chongqing Shunbo go up and down completely randomly.

Pair Corralation between HeBei Jinniu and Chongqing Shunbo

Assuming the 90 days trading horizon HeBei Jinniu Chemical is expected to under-perform the Chongqing Shunbo. In addition to that, HeBei Jinniu is 2.15 times more volatile than Chongqing Shunbo Aluminum. It trades about -0.02 of its total potential returns per unit of risk. Chongqing Shunbo Aluminum is currently generating about -0.02 per unit of volatility. If you would invest  671.00  in Chongqing Shunbo Aluminum on September 25, 2024 and sell it today you would lose (10.00) from holding Chongqing Shunbo Aluminum or give up 1.49% of portfolio value over 90 days.

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

HeBei Jinniu Chemical  vs.  Chongqing Shunbo Aluminum

HeBei Jinniu Chemical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HeBei Jinniu Chemical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HeBei Jinniu sustained solid returns over the last few months and may actually be approaching a breakup point.

Chongqing Shunbo Aluminum

Risk-Adjusted Performance

11 of 100

OK

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

Pair Trading with HeBei Jinniu and Chongqing Shunbo

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

The idea behind HeBei Jinniu Chemical and Chongqing Shunbo Aluminum 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 Stocks Directory module to find actively traded stocks across global markets.