Correlation Between China Rare and Cobalt Blue

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

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

Diversification Opportunities for China Rare and Cobalt Blue

0.23

Correlation Coefficient

China Rare  Cobalt Blue

Modest diversification

The 3 months correlation between China and Cobalt is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding China Rare Earth and Cobalt Blue Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cobalt Blue Holdings and China Rare 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 Rare Earth are associated (or correlated) with Cobalt Blue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cobalt Blue Holdings has no effect on the direction of China Rare i.e., China Rare and Cobalt Blue go up and down completely randomly.

Pair Corralation between China Rare and Cobalt Blue

Assuming the 90 days horizon China Rare Earth is expected to generate 1.36 times more return on investment than Cobalt Blue. However, China Rare is 1.36 times more volatile than Cobalt Blue Holdings. It trades about 0.09 of its potential returns per unit of risk. Cobalt Blue Holdings is currently generating about 0.06 per unit of risk. If you would invest  5.00  in China Rare Earth on November 20, 2024 and sell it today you would earn a total of  1.00  from holding China Rare Earth or generate 20.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

China Rare Earth  vs.  Cobalt Blue Holdings

China Rare Earth

Risk-Adjusted Performance

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.

Cobalt Blue Holdings

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cobalt Blue Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Cobalt Blue reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Rare and Cobalt Blue

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

The idea behind China Rare Earth and Cobalt Blue Holdings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.