Correlation Between A Cap and China Rare

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

By analyzing existing cross correlation between A Cap Energy Limited and China Rare Earth, you can compare the effects of market volatilities on A Cap and China Rare 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 A Cap with a short position of China Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of A Cap and China Rare.

Diversification Opportunities for A Cap and China Rare

-0.07

Correlation Coefficient

A Cap  China Rare

Good diversification

The 3 months correlation between APCDF and China is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding A Cap Energy Limited and China Rare Earth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Rare Earth and A Cap 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 A Cap Energy Limited are associated (or correlated) with China Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Rare Earth has no effect on the direction of A Cap i.e., A Cap and China Rare go up and down completely randomly.

Pair Corralation between A Cap and China Rare

Assuming the 90 days horizon A Cap Energy Limited is expected to generate 1.37 times more return on investment than China Rare. However, A Cap is 1.37 times more volatile than China Rare Earth. It trades about 0.06 of its potential returns per unit of risk. China Rare Earth is currently generating about 0.07 per unit of risk. If you would invest  6.00  in A Cap Energy Limited on October 9, 2024 and sell it today you would lose (3.40) from holding A Cap Energy Limited or give up 56.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	28.24%
Values	Daily Returns

A Cap Energy Limited  vs.  China Rare Earth

A Cap Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

China Rare Earth

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Rare Earth are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Rare reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with A Cap and China Rare

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

The idea behind A Cap Energy Limited and China Rare Earth 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.