Correlation Between Tongling Nonferrous and China International

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

By analyzing existing cross correlation between Tongling Nonferrous Metals and China International Travel, you can compare the effects of market volatilities on Tongling Nonferrous and China International 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 Tongling Nonferrous with a short position of China International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tongling Nonferrous and China International.

Diversification Opportunities for Tongling Nonferrous and China International

0.78

Correlation Coefficient

Tongling Nonferrous  China International

Poor diversification

The 3 months correlation between Tongling and China is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Tongling Nonferrous Metals and China International Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China International and Tongling Nonferrous 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 Tongling Nonferrous Metals are associated (or correlated) with China International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China International has no effect on the direction of Tongling Nonferrous i.e., Tongling Nonferrous and China International go up and down completely randomly.

Pair Corralation between Tongling Nonferrous and China International

Assuming the 90 days trading horizon Tongling Nonferrous is expected to generate 1.8 times less return on investment than China International. But when comparing it to its historical volatility, Tongling Nonferrous Metals is 1.35 times less risky than China International. It trades about 0.11 of its potential returns per unit of risk. China International Travel is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,376  in China International Travel on September 15, 2024 and sell it today you would earn a total of  1,754  from holding China International Travel or generate 32.63% return on investment over 90 days.

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

Tongling Nonferrous Metals  vs.  China International Travel

Tongling Nonferrous

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tongling Nonferrous Metals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tongling Nonferrous sustained solid returns over the last few months and may actually be approaching a breakup point.

China International

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China International Travel are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China International sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tongling Nonferrous and China International

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

The idea behind Tongling Nonferrous Metals and China International Travel 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.