Correlation Between Tibet Huayu and Shanghai Yanpu

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

Diversification Opportunities for Tibet Huayu and Shanghai Yanpu

0.85

Correlation Coefficient

Tibet Huayu  Shanghai Yanpu

Very poor diversification

The 3 months correlation between Tibet and Shanghai is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Tibet Huayu Mining and Shanghai Yanpu Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Yanpu 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 Shanghai Yanpu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Yanpu Metal has no effect on the direction of Tibet Huayu i.e., Tibet Huayu and Shanghai Yanpu go up and down completely randomly.

Pair Corralation between Tibet Huayu and Shanghai Yanpu

Assuming the 90 days trading horizon Tibet Huayu Mining is expected to under-perform the Shanghai Yanpu. In addition to that, Tibet Huayu is 1.13 times more volatile than Shanghai Yanpu Metal. It trades about -0.01 of its total potential returns per unit of risk. Shanghai Yanpu Metal is currently generating about 0.03 per unit of volatility. If you would invest  3,691  in Shanghai Yanpu Metal on September 26, 2024 and sell it today you would earn a total of  27.00  from holding Shanghai Yanpu Metal or generate 0.73% return on investment over 90 days.

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

Tibet Huayu Mining  vs.  Shanghai Yanpu Metal

Tibet Huayu Mining

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tibet Huayu Mining are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tibet Huayu sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Yanpu Metal

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Yanpu Metal are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Yanpu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tibet Huayu and Shanghai Yanpu

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

The idea behind Tibet Huayu Mining and Shanghai Yanpu 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.