Correlation Between China Marine and Ningxia Building

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

By analyzing existing cross correlation between China Marine Information and Ningxia Building Materials, you can compare the effects of market volatilities on China Marine and Ningxia Building 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 Marine with a short position of Ningxia Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Marine and Ningxia Building.

Diversification Opportunities for China Marine and Ningxia Building

0.33

Correlation Coefficient

China Marine  Ningxia Building

Weak diversification

The 3 months correlation between China and Ningxia is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding China Marine Information and Ningxia Building Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningxia Building Mat and China Marine 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 Marine Information are associated (or correlated) with Ningxia Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningxia Building Mat has no effect on the direction of China Marine i.e., China Marine and Ningxia Building go up and down completely randomly.

Pair Corralation between China Marine and Ningxia Building

Assuming the 90 days trading horizon China Marine Information is expected to generate 1.38 times more return on investment than Ningxia Building. However, China Marine is 1.38 times more volatile than Ningxia Building Materials. It trades about -0.09 of its potential returns per unit of risk. Ningxia Building Materials is currently generating about -0.18 per unit of risk. If you would invest  2,802  in China Marine Information on October 14, 2024 and sell it today you would lose (261.00) from holding China Marine Information or give up 9.31% of portfolio value over 90 days.

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

China Marine Information  vs.  Ningxia Building Materials

China Marine Information

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ningxia Building Mat

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ningxia Building Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Ningxia Building is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Marine and Ningxia Building

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

The idea behind China Marine Information and Ningxia Building 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.