Correlation Between Hainan Mining and Nexchip Semiconductor

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

Diversification Opportunities for Hainan Mining and Nexchip Semiconductor

0.87

Correlation Coefficient

Hainan Mining  Nexchip Semiconductor

Very poor diversification

The 3 months correlation between Hainan and Nexchip is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Mining Co and Nexchip Semiconductor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nexchip Semiconductor 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 Nexchip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nexchip Semiconductor has no effect on the direction of Hainan Mining i.e., Hainan Mining and Nexchip Semiconductor go up and down completely randomly.

Pair Corralation between Hainan Mining and Nexchip Semiconductor

Assuming the 90 days trading horizon Hainan Mining is expected to generate 1.8 times less return on investment than Nexchip Semiconductor. But when comparing it to its historical volatility, Hainan Mining Co is 1.5 times less risky than Nexchip Semiconductor. It trades about 0.21 of its potential returns per unit of risk. Nexchip Semiconductor Corp is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,446  in Nexchip Semiconductor Corp on September 5, 2024 and sell it today you would earn a total of  1,315  from holding Nexchip Semiconductor Corp or generate 90.94% return on investment over 90 days.

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

Hainan Mining Co  vs.  Nexchip Semiconductor Corp

Hainan Mining

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Mining Co are ranked lower than 16 (%) 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.

Nexchip Semiconductor

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nexchip Semiconductor Corp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nexchip Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hainan Mining and Nexchip Semiconductor

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

The idea behind Hainan Mining Co and Nexchip Semiconductor Corp 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.