Correlation Between China Aluminum and Chongqing Rural

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

Diversification Opportunities for China Aluminum and Chongqing Rural

-0.23

Correlation Coefficient

China Aluminum  Chongqing Rural

Very good diversification

The 3 months correlation between China and Chongqing is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding China Aluminum International and Chongqing Rural Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Rural Comm 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 Chongqing Rural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Rural Comm has no effect on the direction of China Aluminum i.e., China Aluminum and Chongqing Rural go up and down completely randomly.

Pair Corralation between China Aluminum and Chongqing Rural

Assuming the 90 days trading horizon China Aluminum is expected to generate 9.73 times less return on investment than Chongqing Rural. In addition to that, China Aluminum is 1.54 times more volatile than Chongqing Rural Commercial. It trades about 0.01 of its total potential returns per unit of risk. Chongqing Rural Commercial is currently generating about 0.08 per unit of volatility. If you would invest  423.00  in Chongqing Rural Commercial on October 9, 2024 and sell it today you would earn a total of  156.00  from holding Chongqing Rural Commercial or generate 36.88% return on investment over 90 days.

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

China Aluminum International  vs.  Chongqing Rural Commercial

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 somewhat strong basic indicators, China Aluminum is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chongqing Rural Comm

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with China Aluminum and Chongqing Rural

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

The idea behind China Aluminum International and Chongqing Rural Commercial 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.