Correlation Between Shanghai Yanpu and China Molybdenum

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

By analyzing existing cross correlation between Shanghai Yanpu Metal and China Molybdenum Co, you can compare the effects of market volatilities on Shanghai Yanpu and China Molybdenum 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 Shanghai Yanpu with a short position of China Molybdenum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Yanpu and China Molybdenum.

Diversification Opportunities for Shanghai Yanpu and China Molybdenum

0.14

Correlation Coefficient

Shanghai Yanpu  China Molybdenum

Average diversification

The 3 months correlation between Shanghai and China is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Yanpu Metal and China Molybdenum Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Molybdenum and Shanghai Yanpu 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 Shanghai Yanpu Metal are associated (or correlated) with China Molybdenum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Molybdenum has no effect on the direction of Shanghai Yanpu i.e., Shanghai Yanpu and China Molybdenum go up and down completely randomly.

Pair Corralation between Shanghai Yanpu and China Molybdenum

Assuming the 90 days trading horizon Shanghai Yanpu Metal is expected to generate 1.37 times more return on investment than China Molybdenum. However, Shanghai Yanpu is 1.37 times more volatile than China Molybdenum Co. It trades about 0.21 of its potential returns per unit of risk. China Molybdenum Co is currently generating about -0.04 per unit of risk. If you would invest  2,555  in Shanghai Yanpu Metal on September 23, 2024 and sell it today you would earn a total of  1,240  from holding Shanghai Yanpu Metal or generate 48.53% return on investment over 90 days.

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

Shanghai Yanpu Metal  vs.  China Molybdenum Co

Shanghai Yanpu Metal

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Yanpu Metal are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Yanpu sustained solid returns over the last few months and may actually be approaching a breakup point.

China Molybdenum

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shanghai Yanpu and China Molybdenum

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

The idea behind Shanghai Yanpu Metal and China Molybdenum Co 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.