Correlation Between China Hongqiao and Century Aluminum

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

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

Diversification Opportunities for China Hongqiao and Century Aluminum

0.06

Correlation Coefficient

China Hongqiao  Century Aluminum

Significant diversification

The 3 months correlation between China and Century is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding China Hongqiao Group and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum and China Hongqiao 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 China Hongqiao Group are associated (or correlated) with Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of China Hongqiao i.e., China Hongqiao and Century Aluminum go up and down completely randomly.

Pair Corralation between China Hongqiao and Century Aluminum

Assuming the 90 days horizon China Hongqiao Group is expected to generate 0.11 times more return on investment than Century Aluminum. However, China Hongqiao Group is 9.5 times less risky than Century Aluminum. It trades about -0.13 of its potential returns per unit of risk. Century Aluminum is currently generating about -0.03 per unit of risk. If you would invest  166.00  in China Hongqiao Group on November 29, 2024 and sell it today you would lose (6.00) from holding China Hongqiao Group or give up 3.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

China Hongqiao Group  vs.  Century Aluminum

China Hongqiao Group

Risk-Adjusted Performance

Very Weak

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

Century Aluminum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Century Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China Hongqiao and Century Aluminum

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

The idea behind China Hongqiao Group and Century Aluminum 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.