Correlation Between Zhengzhou Coal and Focus Media

Can any of the company-specific risk be diversified away by investing in both Zhengzhou Coal and Focus Media 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 Zhengzhou Coal and Focus Media into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhengzhou Coal Mining and Focus Media Information, you can compare the effects of market volatilities on Zhengzhou Coal and Focus Media 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 Zhengzhou Coal with a short position of Focus Media. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhengzhou Coal and Focus Media.

Diversification Opportunities for Zhengzhou Coal and Focus Media

0.89

Correlation Coefficient

Zhengzhou Coal  Focus Media

Very poor diversification

The 3 months correlation between Zhengzhou and Focus is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Zhengzhou Coal Mining and Focus Media Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focus Media Information and Zhengzhou Coal 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 Zhengzhou Coal Mining are associated (or correlated) with Focus Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focus Media Information has no effect on the direction of Zhengzhou Coal i.e., Zhengzhou Coal and Focus Media go up and down completely randomly.

Pair Corralation between Zhengzhou Coal and Focus Media

Assuming the 90 days trading horizon Zhengzhou Coal Mining is expected to generate 1.02 times more return on investment than Focus Media. However, Zhengzhou Coal is 1.02 times more volatile than Focus Media Information. It trades about 0.0 of its potential returns per unit of risk. Focus Media Information is currently generating about -0.09 per unit of risk. If you would invest  1,294  in Zhengzhou Coal Mining on September 23, 2024 and sell it today you would lose (6.00) from holding Zhengzhou Coal Mining or give up 0.46% of portfolio value over 90 days.

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

Zhengzhou Coal Mining  vs.  Focus Media Information

Zhengzhou Coal Mining

Risk-Adjusted Performance

7 of 100

OK

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

Focus Media Information

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Zhengzhou Coal and Focus Media

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

The idea behind Zhengzhou Coal Mining and Focus Media Information 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.