Correlation Between Zhengzhou Coal and Orinko Advanced

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

Diversification Opportunities for Zhengzhou Coal and Orinko Advanced

0.65

Correlation Coefficient

Zhengzhou Coal  Orinko Advanced

Poor diversification

The 3 months correlation between Zhengzhou and Orinko is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Zhengzhou Coal Mining and Orinko Advanced Plastics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orinko Advanced Plastics 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 Orinko Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orinko Advanced Plastics has no effect on the direction of Zhengzhou Coal i.e., Zhengzhou Coal and Orinko Advanced go up and down completely randomly.

Pair Corralation between Zhengzhou Coal and Orinko Advanced

Assuming the 90 days trading horizon Zhengzhou Coal is expected to generate 88.65 times less return on investment than Orinko Advanced. But when comparing it to its historical volatility, Zhengzhou Coal Mining is 3.18 times less risky than Orinko Advanced. It trades about 0.0 of its potential returns per unit of risk. Orinko Advanced Plastics is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  938.00  in Orinko Advanced Plastics on September 21, 2024 and sell it today you would earn a total of  104.00  from holding Orinko Advanced Plastics or generate 11.09% return on investment over 90 days.

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

Zhengzhou Coal Mining  vs.  Orinko Advanced Plastics

Zhengzhou Coal Mining

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhengzhou Coal Mining are ranked lower than 8 (%) 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.

Orinko Advanced Plastics

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Orinko Advanced Plastics are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Orinko Advanced sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhengzhou Coal and Orinko Advanced

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

The idea behind Zhengzhou Coal Mining and Orinko Advanced Plastics 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.