Correlation Between China Aluminum and Tianshan Aluminum

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

Diversification Opportunities for China Aluminum and Tianshan Aluminum

-0.45

Correlation Coefficient

China Aluminum  Tianshan Aluminum

Very good diversification

The 3 months correlation between China and Tianshan is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding China Aluminum International and Tianshan Aluminum Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianshan Aluminum 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 Tianshan Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianshan Aluminum has no effect on the direction of China Aluminum i.e., China Aluminum and Tianshan Aluminum go up and down completely randomly.

Pair Corralation between China Aluminum and Tianshan Aluminum

Assuming the 90 days trading horizon China Aluminum International is expected to under-perform the Tianshan Aluminum. But the stock apears to be less risky and, when comparing its historical volatility, China Aluminum International is 1.16 times less risky than Tianshan Aluminum. The stock trades about -0.1 of its potential returns per unit of risk. The Tianshan Aluminum Group is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  807.00  in Tianshan Aluminum Group on December 4, 2024 and sell it today you would earn a total of  93.00  from holding Tianshan Aluminum Group or generate 11.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

China Aluminum International  vs.  Tianshan Aluminum Group

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.

Tianshan Aluminum

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tianshan Aluminum Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianshan Aluminum sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Aluminum and Tianshan Aluminum

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

The idea behind China Aluminum International and Tianshan Aluminum Group 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.