Correlation Between Fuda Alloy and China National

Can any of the company-specific risk be diversified away by investing in both Fuda Alloy and China National 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 Fuda Alloy and China National into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fuda Alloy Materials and China National Electric, you can compare the effects of market volatilities on Fuda Alloy and China National 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 Fuda Alloy with a short position of China National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fuda Alloy and China National.

Diversification Opportunities for Fuda Alloy and China National

0.65

Correlation Coefficient

Fuda Alloy  China National

Poor diversification

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

Pair Corralation between Fuda Alloy and China National

Assuming the 90 days trading horizon Fuda Alloy Materials is expected to generate 1.45 times more return on investment than China National. However, Fuda Alloy is 1.45 times more volatile than China National Electric. It trades about 0.2 of its potential returns per unit of risk. China National Electric is currently generating about 0.05 per unit of risk. If you would invest  1,227  in Fuda Alloy Materials on December 24, 2024 and sell it today you would earn a total of  458.00  from holding Fuda Alloy Materials or generate 37.33% return on investment over 90 days.

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

Fuda Alloy Materials  vs.  China National Electric

Fuda Alloy Materials

Risk-Adjusted Performance

Good

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

China National Electric

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China National Electric are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China National may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Fuda Alloy and China National

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

The idea behind Fuda Alloy Materials and China National Electric 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.