Correlation Between Tibet Huayu and Zhejiang Yayi

Can any of the company-specific risk be diversified away by investing in both Tibet Huayu and Zhejiang Yayi 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 Zhejiang Yayi 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 Zhejiang Yayi Metal, you can compare the effects of market volatilities on Tibet Huayu and Zhejiang Yayi 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 Zhejiang Yayi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tibet Huayu and Zhejiang Yayi.

Diversification Opportunities for Tibet Huayu and Zhejiang Yayi

0.67

Correlation Coefficient

Tibet Huayu  Zhejiang Yayi

Poor diversification

The 3 months correlation between Tibet and Zhejiang is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Tibet Huayu Mining and Zhejiang Yayi Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Yayi Metal 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 Zhejiang Yayi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Yayi Metal has no effect on the direction of Tibet Huayu i.e., Tibet Huayu and Zhejiang Yayi go up and down completely randomly.

Pair Corralation between Tibet Huayu and Zhejiang Yayi

Assuming the 90 days trading horizon Tibet Huayu Mining is expected to generate 0.72 times more return on investment than Zhejiang Yayi. However, Tibet Huayu Mining is 1.38 times less risky than Zhejiang Yayi. It trades about -0.14 of its potential returns per unit of risk. Zhejiang Yayi Metal is currently generating about -0.19 per unit of risk. If you would invest  1,364  in Tibet Huayu Mining on October 20, 2024 and sell it today you would lose (88.00) from holding Tibet Huayu Mining or give up 6.45% of portfolio value over 90 days.

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

Tibet Huayu Mining  vs.  Zhejiang Yayi Metal

Tibet Huayu Mining

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tibet Huayu Mining are ranked lower than 1 (%) 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.

Zhejiang Yayi Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Tibet Huayu and Zhejiang Yayi

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

The idea behind Tibet Huayu Mining and Zhejiang Yayi Metal 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.