Correlation Between Hainan Mining and Sichuan Yahua

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

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

Diversification Opportunities for Hainan Mining and Sichuan Yahua

0.85

Correlation Coefficient

Hainan Mining  Sichuan Yahua

Very poor diversification

The 3 months correlation between Hainan and Sichuan is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Mining Co and Sichuan Yahua Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Yahua Industrial and Hainan 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 Hainan Mining Co are associated (or correlated) with Sichuan Yahua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Yahua Industrial has no effect on the direction of Hainan Mining i.e., Hainan Mining and Sichuan Yahua go up and down completely randomly.

Pair Corralation between Hainan Mining and Sichuan Yahua

Assuming the 90 days trading horizon Hainan Mining Co is expected to generate 0.91 times more return on investment than Sichuan Yahua. However, Hainan Mining Co is 1.1 times less risky than Sichuan Yahua. It trades about 0.01 of its potential returns per unit of risk. Sichuan Yahua Industrial is currently generating about -0.05 per unit of risk. If you would invest  712.00  in Hainan Mining Co on October 4, 2024 and sell it today you would lose (3.00) from holding Hainan Mining Co or give up 0.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.79%
Values	Daily Returns

Hainan Mining Co  vs.  Sichuan Yahua Industrial

Hainan Mining

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sichuan Yahua Industrial

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Hainan Mining and Sichuan Yahua

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

The idea behind Hainan Mining Co and Sichuan Yahua Industrial 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.