Correlation Between Gulf Resources and Century Aluminum

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

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

Diversification Opportunities for Gulf Resources and Century Aluminum

0.25

Correlation Coefficient

Gulf Resources  Century Aluminum

Modest diversification

The 3 months correlation between Gulf and Century is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Gulf Resources and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum and Gulf Resources 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 Gulf Resources 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 Gulf Resources i.e., Gulf Resources and Century Aluminum go up and down completely randomly.

Pair Corralation between Gulf Resources and Century Aluminum

Given the investment horizon of 90 days Gulf Resources is expected to generate 1.35 times more return on investment than Century Aluminum. However, Gulf Resources is 1.35 times more volatile than Century Aluminum. It trades about 0.1 of its potential returns per unit of risk. Century Aluminum is currently generating about 0.04 per unit of risk. If you would invest  55.00  in Gulf Resources on December 28, 2024 and sell it today you would earn a total of  17.00  from holding Gulf Resources or generate 30.91% return on investment over 90 days.

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

Gulf Resources  vs.  Century Aluminum

Gulf Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Gulf Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Century Aluminum

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gulf Resources and Century Aluminum

The main advantage of trading using opposite Gulf Resources and Century Aluminum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gulf Resources 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 Gulf Resources 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..