Correlation Between Mount Gibson and CHINA HUARONG

Can any of the company-specific risk be diversified away by investing in both Mount Gibson and CHINA HUARONG 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 Mount Gibson and CHINA HUARONG into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mount Gibson Iron and CHINA HUARONG ENERHD 50, you can compare the effects of market volatilities on Mount Gibson and CHINA HUARONG 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 Mount Gibson with a short position of CHINA HUARONG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mount Gibson and CHINA HUARONG.

Diversification Opportunities for Mount Gibson and CHINA HUARONG

0.28

Correlation Coefficient

Mount Gibson  CHINA HUARONG

Modest diversification

The 3 months correlation between Mount and CHINA is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Mount Gibson Iron and CHINA HUARONG ENERHD 50 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA HUARONG ENERHD and Mount Gibson 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 Mount Gibson Iron are associated (or correlated) with CHINA HUARONG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA HUARONG ENERHD has no effect on the direction of Mount Gibson i.e., Mount Gibson and CHINA HUARONG go up and down completely randomly.

Pair Corralation between Mount Gibson and CHINA HUARONG

Assuming the 90 days horizon Mount Gibson is expected to generate 22.2 times less return on investment than CHINA HUARONG. But when comparing it to its historical volatility, Mount Gibson Iron is 5.71 times less risky than CHINA HUARONG. It trades about 0.02 of its potential returns per unit of risk. CHINA HUARONG ENERHD 50 is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.20  in CHINA HUARONG ENERHD 50 on October 23, 2024 and sell it today you would lose (0.05) from holding CHINA HUARONG ENERHD 50 or give up 25.0% of portfolio value over 90 days.

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

Mount Gibson Iron  vs.  CHINA HUARONG ENERHD 50

Mount Gibson Iron

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mount Gibson Iron are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Mount Gibson is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CHINA HUARONG ENERHD

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, CHINA HUARONG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mount Gibson and CHINA HUARONG

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

The idea behind Mount Gibson Iron and CHINA HUARONG ENERHD 50 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.