Correlation Between Nine Dragons and Canfor Pulp

Can any of the company-specific risk be diversified away by investing in both Nine Dragons and Canfor Pulp 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 Nine Dragons and Canfor Pulp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nine Dragons Paper and Canfor Pulp Products, you can compare the effects of market volatilities on Nine Dragons and Canfor Pulp 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 Nine Dragons with a short position of Canfor Pulp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nine Dragons and Canfor Pulp.

Diversification Opportunities for Nine Dragons and Canfor Pulp

0.73

Correlation Coefficient

Nine Dragons  Canfor Pulp

Poor diversification

The 3 months correlation between Nine and Canfor is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Nine Dragons Paper and Canfor Pulp Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canfor Pulp Products and Nine Dragons 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 Nine Dragons Paper are associated (or correlated) with Canfor Pulp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canfor Pulp Products has no effect on the direction of Nine Dragons i.e., Nine Dragons and Canfor Pulp go up and down completely randomly.

Pair Corralation between Nine Dragons and Canfor Pulp

Assuming the 90 days horizon Nine Dragons Paper is expected to generate 0.89 times more return on investment than Canfor Pulp. However, Nine Dragons Paper is 1.13 times less risky than Canfor Pulp. It trades about -0.04 of its potential returns per unit of risk. Canfor Pulp Products is currently generating about -0.07 per unit of risk. If you would invest  94.00  in Nine Dragons Paper on October 11, 2024 and sell it today you would lose (58.00) from holding Nine Dragons Paper or give up 61.7% of portfolio value over 90 days.

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

Nine Dragons Paper  vs.  Canfor Pulp Products

Nine Dragons Paper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nine Dragons Paper has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Canfor Pulp Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canfor Pulp Products has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Nine Dragons and Canfor Pulp

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

The idea behind Nine Dragons Paper and Canfor Pulp Products 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.