Correlation Between Tibet Huayu and Sichuan Yahua

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Can any of the company-specific risk be diversified away by investing in both Tibet Huayu and Sichuan Yahua 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 Tibet Huayu and Sichuan Yahua into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tibet Huayu Mining and Sichuan Yahua Industrial, you can compare the effects of market volatilities on Tibet Huayu and Sichuan Yahua 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 Tibet Huayu with a short position of Sichuan Yahua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tibet Huayu and Sichuan Yahua.

Diversification Opportunities for Tibet Huayu and Sichuan Yahua

0.38
  Correlation Coefficient

Weak diversification

The 3 months correlation between Tibet and Sichuan is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Tibet Huayu Mining and Sichuan Yahua Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Yahua Industrial and Tibet Huayu 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 Tibet Huayu Mining are associated (or correlated) with Sichuan Yahua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Yahua Industrial has no effect on the direction of Tibet Huayu i.e., Tibet Huayu and Sichuan Yahua go up and down completely randomly.

Pair Corralation between Tibet Huayu and Sichuan Yahua

Assuming the 90 days trading horizon Tibet Huayu Mining is expected to generate 0.92 times more return on investment than Sichuan Yahua. However, Tibet Huayu Mining is 1.09 times less risky than Sichuan Yahua. It trades about 0.04 of its potential returns per unit of risk. Sichuan Yahua Industrial is currently generating about 0.01 per unit of risk. If you would invest  1,465  in Tibet Huayu Mining on November 30, 2024 and sell it today you would earn a total of  52.00  from holding Tibet Huayu Mining or generate 3.55% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy98.28%
ValuesDaily Returns

Tibet Huayu Mining  vs.  Sichuan Yahua Industrial

 Performance 
       Timeline  
Tibet Huayu Mining 

Risk-Adjusted Performance

Weak

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

Risk-Adjusted Performance

Very Weak

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

Tibet Huayu and Sichuan Yahua Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tibet Huayu and Sichuan Yahua

The main advantage of trading using opposite Tibet Huayu and Sichuan Yahua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tibet Huayu position performs unexpectedly, Sichuan Yahua 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 Sichuan Yahua will offset losses from the drop in Sichuan Yahua's long position.
The idea behind Tibet Huayu Mining and Sichuan Yahua Industrial 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.

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