Correlation Between Western Metal and Hainan Mining

Can any of the company-specific risk be diversified away by investing in both Western Metal and Hainan Mining 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 Western Metal and Hainan Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Metal Materials and Hainan Mining Co, you can compare the effects of market volatilities on Western Metal and Hainan Mining 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 Western Metal with a short position of Hainan Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Metal and Hainan Mining.

Diversification Opportunities for Western Metal and Hainan Mining

0.85

Correlation Coefficient

Western Metal  Hainan Mining

Very poor diversification

The 3 months correlation between Western and Hainan is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Western Metal Materials and Hainan Mining Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Mining and Western Metal 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 Western Metal Materials are associated (or correlated) with Hainan Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Mining has no effect on the direction of Western Metal i.e., Western Metal and Hainan Mining go up and down completely randomly.

Pair Corralation between Western Metal and Hainan Mining

Assuming the 90 days trading horizon Western Metal Materials is expected to generate 1.01 times more return on investment than Hainan Mining. However, Western Metal is 1.01 times more volatile than Hainan Mining Co. It trades about 0.19 of its potential returns per unit of risk. Hainan Mining Co is currently generating about 0.15 per unit of risk. If you would invest  1,296  in Western Metal Materials on September 24, 2024 and sell it today you would earn a total of  515.00  from holding Western Metal Materials or generate 39.74% return on investment over 90 days.

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

Western Metal Materials  vs.  Hainan Mining Co

Western Metal Materials

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Hainan Mining

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Mining Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Metal and Hainan Mining

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

The idea behind Western Metal Materials and Hainan Mining Co 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 Transaction History module to view history of all your transactions and understand their impact on performance.