Correlation Between Xinjiang Baodi and China National

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

By analyzing existing cross correlation between Xinjiang Baodi Mining and China National Software, you can compare the effects of market volatilities on Xinjiang Baodi and China National 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 Xinjiang Baodi with a short position of China National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinjiang Baodi and China National.

Diversification Opportunities for Xinjiang Baodi and China National

0.82

Correlation Coefficient

Xinjiang Baodi  China National

Very poor diversification

The 3 months correlation between Xinjiang and China is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Xinjiang Baodi Mining and China National Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China National Software and Xinjiang Baodi 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 Xinjiang Baodi Mining are associated (or correlated) with China National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China National Software has no effect on the direction of Xinjiang Baodi i.e., Xinjiang Baodi and China National go up and down completely randomly.

Pair Corralation between Xinjiang Baodi and China National

Assuming the 90 days trading horizon Xinjiang Baodi is expected to generate 4.23 times less return on investment than China National. But when comparing it to its historical volatility, Xinjiang Baodi Mining is 1.31 times less risky than China National. It trades about 0.02 of its potential returns per unit of risk. China National Software is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,580  in China National Software on September 20, 2024 and sell it today you would earn a total of  1,476  from holding China National Software or generate 41.23% return on investment over 90 days.

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

Xinjiang Baodi Mining  vs.  China National Software

Xinjiang Baodi Mining

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Baodi Mining are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Baodi sustained solid returns over the last few months and may actually be approaching a breakup point.

China National Software

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Xinjiang Baodi and China National

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

The idea behind Xinjiang Baodi Mining and China National Software 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.