Correlation Between Heilongjiang Transport and Inner Mongolia

Can any of the company-specific risk be diversified away by investing in both Heilongjiang Transport and Inner Mongolia 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 Heilongjiang Transport and Inner Mongolia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Heilongjiang Transport Development and Inner Mongolia BaoTou, you can compare the effects of market volatilities on Heilongjiang Transport and Inner Mongolia 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 Heilongjiang Transport with a short position of Inner Mongolia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heilongjiang Transport and Inner Mongolia.

Diversification Opportunities for Heilongjiang Transport and Inner Mongolia

0.9

Correlation Coefficient

Heilongjiang Transport  Inner Mongolia

Almost no diversification

The 3 months correlation between Heilongjiang and Inner is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Heilongjiang Transport Develop and Inner Mongolia BaoTou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inner Mongolia BaoTou and Heilongjiang Transport 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 Heilongjiang Transport Development are associated (or correlated) with Inner Mongolia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inner Mongolia BaoTou has no effect on the direction of Heilongjiang Transport i.e., Heilongjiang Transport and Inner Mongolia go up and down completely randomly.

Pair Corralation between Heilongjiang Transport and Inner Mongolia

Assuming the 90 days trading horizon Heilongjiang Transport Development is expected to generate 1.53 times more return on investment than Inner Mongolia. However, Heilongjiang Transport is 1.53 times more volatile than Inner Mongolia BaoTou. It trades about 0.04 of its potential returns per unit of risk. Inner Mongolia BaoTou is currently generating about 0.05 per unit of risk. If you would invest  375.00  in Heilongjiang Transport Development on September 22, 2024 and sell it today you would earn a total of  7.00  from holding Heilongjiang Transport Development or generate 1.87% return on investment over 90 days.

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

Heilongjiang Transport Develop  vs.  Inner Mongolia BaoTou

Heilongjiang Transport

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heilongjiang Transport Development are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Heilongjiang Transport sustained solid returns over the last few months and may actually be approaching a breakup point.

Inner Mongolia BaoTou

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Heilongjiang Transport and Inner Mongolia

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

The idea behind Heilongjiang Transport Development and Inner Mongolia BaoTou 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.