Correlation Between Western Mining and Jiangxi Naipu

Can any of the company-specific risk be diversified away by investing in both Western Mining and Jiangxi Naipu 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 Western Mining and Jiangxi Naipu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Mining Co and Jiangxi Naipu Mining, you can compare the effects of market volatilities on Western Mining and Jiangxi Naipu 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 Western Mining with a short position of Jiangxi Naipu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Mining and Jiangxi Naipu.

Diversification Opportunities for Western Mining and Jiangxi Naipu

0.44

Correlation Coefficient

Western Mining  Jiangxi Naipu

Very weak diversification

The 3 months correlation between Western and Jiangxi is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Western Mining Co and Jiangxi Naipu Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangxi Naipu Mining and Western Mining 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 Western Mining Co are associated (or correlated) with Jiangxi Naipu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangxi Naipu Mining has no effect on the direction of Western Mining i.e., Western Mining and Jiangxi Naipu go up and down completely randomly.

Pair Corralation between Western Mining and Jiangxi Naipu

Assuming the 90 days trading horizon Western Mining Co is expected to under-perform the Jiangxi Naipu. But the stock apears to be less risky and, when comparing its historical volatility, Western Mining Co is 1.52 times less risky than Jiangxi Naipu. The stock trades about -0.03 of its potential returns per unit of risk. The Jiangxi Naipu Mining is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,318  in Jiangxi Naipu Mining on September 26, 2024 and sell it today you would earn a total of  613.00  from holding Jiangxi Naipu Mining or generate 26.45% return on investment over 90 days.

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

Western Mining Co  vs.  Jiangxi Naipu Mining

Western Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Mining Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Western Mining is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jiangxi Naipu Mining

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangxi Naipu Mining are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangxi Naipu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Mining and Jiangxi Naipu

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

The idea behind Western Mining Co and Jiangxi Naipu Mining 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.