Correlation Between Hainan Mining and China Asset

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

Diversification Opportunities for Hainan Mining and China Asset

0.42

Correlation Coefficient

Hainan Mining  China Asset

Very weak diversification

The 3 months correlation between Hainan and China is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Mining Co and China Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Asset Management 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 China Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Asset Management has no effect on the direction of Hainan Mining i.e., Hainan Mining and China Asset go up and down completely randomly.

Pair Corralation between Hainan Mining and China Asset

Assuming the 90 days trading horizon Hainan Mining is expected to generate 1.12 times less return on investment than China Asset. In addition to that, Hainan Mining is 2.47 times more volatile than China Asset Management. It trades about 0.14 of its total potential returns per unit of risk. China Asset Management is currently generating about 0.38 per unit of volatility. If you would invest  315.00  in China Asset Management on September 21, 2024 and sell it today you would earn a total of  34.00  from holding China Asset Management or generate 10.79% return on investment over 90 days.

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

Hainan Mining Co  vs.  China Asset Management

Hainan Mining

Risk-Adjusted Performance

14 of 100

Good

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

China Asset Management

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Asset Management are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Asset may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hainan Mining and China Asset

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

The idea behind Hainan Mining Co and China Asset Management 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.