Correlation Between China Aluminum and Tianshui Huatian

Can any of the company-specific risk be diversified away by investing in both China Aluminum and Tianshui Huatian 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 Tianshui Huatian 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 Tianshui Huatian Technology, you can compare the effects of market volatilities on China Aluminum and Tianshui Huatian 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 Tianshui Huatian. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Aluminum and Tianshui Huatian.

Diversification Opportunities for China Aluminum and Tianshui Huatian

0.67

Correlation Coefficient

China Aluminum  Tianshui Huatian

Poor diversification

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

Pair Corralation between China Aluminum and Tianshui Huatian

Assuming the 90 days trading horizon China Aluminum International is expected to under-perform the Tianshui Huatian. But the stock apears to be less risky and, when comparing its historical volatility, China Aluminum International is 1.21 times less risky than Tianshui Huatian. The stock trades about -0.07 of its potential returns per unit of risk. The Tianshui Huatian Technology is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,170  in Tianshui Huatian Technology on November 28, 2024 and sell it today you would earn a total of  0.00  from holding Tianshui Huatian Technology or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

China Aluminum International  vs.  Tianshui Huatian Technology

China Aluminum Inter

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Aluminum International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Tianshui Huatian Tec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tianshui Huatian Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tianshui Huatian 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 Aluminum and Tianshui Huatian

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

The idea behind China Aluminum International and Tianshui Huatian Technology 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.