Correlation Between Aluminumof China and X FAB

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

By analyzing existing cross correlation between Aluminum of and X FAB Silicon Foundries, you can compare the effects of market volatilities on Aluminumof China and X FAB 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 Aluminumof China with a short position of X FAB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aluminumof China and X FAB.

Diversification Opportunities for Aluminumof China and X FAB

0.64

Correlation Coefficient

Aluminumof China  X FAB

Poor diversification

The 3 months correlation between Aluminumof and XFB is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum of and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon and Aluminumof China 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 Aluminum of are associated (or correlated) with X FAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of Aluminumof China i.e., Aluminumof China and X FAB go up and down completely randomly.

Pair Corralation between Aluminumof China and X FAB

Assuming the 90 days horizon Aluminum of is expected to under-perform the X FAB. But the stock apears to be less risky and, when comparing its historical volatility, Aluminum of is 1.44 times less risky than X FAB. The stock trades about -0.19 of its potential returns per unit of risk. The X FAB Silicon Foundries is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  432.00  in X FAB Silicon Foundries on September 27, 2024 and sell it today you would earn a total of  56.00  from holding X FAB Silicon Foundries or generate 12.96% return on investment over 90 days.

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

Aluminum of  vs.  X FAB Silicon Foundries

Aluminumof China

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aluminum of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Aluminumof China is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aluminumof China and X FAB

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

The idea behind Aluminum of and X FAB Silicon Foundries 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.