Correlation Between Tianjin Capital and Kaiser Aluminum

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

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

Diversification Opportunities for Tianjin Capital and Kaiser Aluminum

0.55

Correlation Coefficient

Tianjin Capital  Kaiser Aluminum

Very weak diversification

The 3 months correlation between Tianjin and Kaiser is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Tianjin Capital Environmental and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum and Tianjin Capital 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 Tianjin Capital Environmental are associated (or correlated) with Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Tianjin Capital i.e., Tianjin Capital and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Tianjin Capital and Kaiser Aluminum

Assuming the 90 days horizon Tianjin Capital Environmental is expected to under-perform the Kaiser Aluminum. But the stock apears to be less risky and, when comparing its historical volatility, Tianjin Capital Environmental is 1.32 times less risky than Kaiser Aluminum. The stock trades about -0.07 of its potential returns per unit of risk. The Kaiser Aluminum is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  6,525  in Kaiser Aluminum on December 30, 2024 and sell it today you would lose (475.00) from holding Kaiser Aluminum or give up 7.28% of portfolio value over 90 days.

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

Tianjin Capital Environmental  vs.  Kaiser Aluminum

Tianjin Capital Envi

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tianjin Capital Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

Kaiser Aluminum

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Tianjin Capital and Kaiser Aluminum

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

The idea behind Tianjin Capital Environmental and Kaiser 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.