Correlation Between China Aluminum and Hunan Tyen

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

Diversification Opportunities for China Aluminum and Hunan Tyen

0.4

Correlation Coefficient

China Aluminum  Hunan Tyen

Very weak diversification

The 3 months correlation between China and Hunan is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding China Aluminum International and Hunan Tyen Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunan Tyen Machinery 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 Hunan Tyen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunan Tyen Machinery has no effect on the direction of China Aluminum i.e., China Aluminum and Hunan Tyen go up and down completely randomly.

Pair Corralation between China Aluminum and Hunan Tyen

Assuming the 90 days trading horizon China Aluminum International is expected to under-perform the Hunan Tyen. But the stock apears to be less risky and, when comparing its historical volatility, China Aluminum International is 2.3 times less risky than Hunan Tyen. The stock trades about -0.15 of its potential returns per unit of risk. The Hunan Tyen Machinery is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  501.00  in Hunan Tyen Machinery on October 23, 2024 and sell it today you would earn a total of  51.00  from holding Hunan Tyen Machinery or generate 10.18% return on investment over 90 days.

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

China Aluminum International  vs.  Hunan Tyen Machinery

China Aluminum Inter

Risk-Adjusted Performance

0 of 100

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.

Hunan Tyen Machinery

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Tyen Machinery are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Tyen sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Aluminum and Hunan Tyen

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

The idea behind China Aluminum International and Hunan Tyen Machinery 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.