Correlation Between Zhengzhou Coal and Chengtun Mining

Can any of the company-specific risk be diversified away by investing in both Zhengzhou Coal and Chengtun Mining 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 Chengtun Mining 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 Chengtun Mining Group, you can compare the effects of market volatilities on Zhengzhou Coal and Chengtun Mining 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 Chengtun Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhengzhou Coal and Chengtun Mining.

Diversification Opportunities for Zhengzhou Coal and Chengtun Mining

0.84

Correlation Coefficient

Zhengzhou Coal  Chengtun Mining

Very poor diversification

The 3 months correlation between Zhengzhou and Chengtun is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Zhengzhou Coal Mining and Chengtun Mining Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengtun Mining Group 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 Chengtun Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengtun Mining Group has no effect on the direction of Zhengzhou Coal i.e., Zhengzhou Coal and Chengtun Mining go up and down completely randomly.

Pair Corralation between Zhengzhou Coal and Chengtun Mining

Assuming the 90 days trading horizon Zhengzhou Coal is expected to generate 2.8 times less return on investment than Chengtun Mining. But when comparing it to its historical volatility, Zhengzhou Coal Mining is 1.05 times less risky than Chengtun Mining. It trades about 0.07 of its potential returns per unit of risk. Chengtun Mining Group is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  376.00  in Chengtun Mining Group on September 2, 2024 and sell it today you would earn a total of  106.00  from holding Chengtun Mining Group or generate 28.19% return on investment over 90 days.

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

Zhengzhou Coal Mining  vs.  Chengtun Mining Group

Zhengzhou Coal Mining

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zhengzhou Coal Mining are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhengzhou Coal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Chengtun Mining Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chengtun Mining Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengtun Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhengzhou Coal and Chengtun Mining

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

The idea behind Zhengzhou Coal Mining and Chengtun Mining Group 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.