Correlation Between China Aluminum and Tongling Nonferrous

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

By analyzing existing cross correlation between China Aluminum International and Tongling Nonferrous Metals, you can compare the effects of market volatilities on China Aluminum and Tongling Nonferrous 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 Aluminum with a short position of Tongling Nonferrous. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Aluminum and Tongling Nonferrous.

Diversification Opportunities for China Aluminum and Tongling Nonferrous

0.85

Correlation Coefficient

China Aluminum  Tongling Nonferrous

Very poor diversification

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

Pair Corralation between China Aluminum and Tongling Nonferrous

Assuming the 90 days trading horizon China Aluminum International is expected to generate 1.06 times more return on investment than Tongling Nonferrous. However, China Aluminum is 1.06 times more volatile than Tongling Nonferrous Metals. It trades about 0.15 of its potential returns per unit of risk. Tongling Nonferrous Metals is currently generating about 0.07 per unit of risk. If you would invest  379.00  in China Aluminum International on September 2, 2024 and sell it today you would earn a total of  95.00  from holding China Aluminum International or generate 25.07% return on investment over 90 days.

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

China Aluminum International  vs.  Tongling Nonferrous Metals

China Aluminum Inter

Risk-Adjusted Performance

11 of 100

Good

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

Tongling Nonferrous

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tongling Nonferrous Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tongling Nonferrous may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Aluminum and Tongling Nonferrous

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

The idea behind China Aluminum International and Tongling Nonferrous Metals 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.