Correlation Between Hainan Mining and Zhongyin Babi

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

Diversification Opportunities for Hainan Mining and Zhongyin Babi

0.66

Correlation Coefficient

Hainan Mining  Zhongyin Babi

Poor diversification

The 3 months correlation between Hainan and Zhongyin is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Mining Co and Zhongyin Babi Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongyin Babi Food 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 Zhongyin Babi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongyin Babi Food has no effect on the direction of Hainan Mining i.e., Hainan Mining and Zhongyin Babi go up and down completely randomly.

Pair Corralation between Hainan Mining and Zhongyin Babi

Assuming the 90 days trading horizon Hainan Mining is expected to generate 3.16 times less return on investment than Zhongyin Babi. But when comparing it to its historical volatility, Hainan Mining Co is 1.31 times less risky than Zhongyin Babi. It trades about 0.01 of its potential returns per unit of risk. Zhongyin Babi Food is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,769  in Zhongyin Babi Food on December 26, 2024 and sell it today you would earn a total of  35.00  from holding Zhongyin Babi Food or generate 1.98% return on investment over 90 days.

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

Hainan Mining Co  vs.  Zhongyin Babi Food

Hainan Mining

Risk-Adjusted Performance

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.

Zhongyin Babi Food

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongyin Babi Food are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Zhongyin Babi 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 Zhongyin Babi

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

The idea behind Hainan Mining Co and Zhongyin Babi Food 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.