Correlation Between Topsec Technologies and Zhengzhou Coal

Can any of the company-specific risk be diversified away by investing in both Topsec Technologies and Zhengzhou Coal 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 Topsec Technologies and Zhengzhou Coal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Topsec Technologies Group and Zhengzhou Coal Mining, you can compare the effects of market volatilities on Topsec Technologies and Zhengzhou Coal 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 Topsec Technologies with a short position of Zhengzhou Coal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Topsec Technologies and Zhengzhou Coal.

Diversification Opportunities for Topsec Technologies and Zhengzhou Coal

0.79

Correlation Coefficient

Topsec Technologies  Zhengzhou Coal

Poor diversification

The 3 months correlation between Topsec and Zhengzhou is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Topsec Technologies Group and Zhengzhou Coal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhengzhou Coal Mining and Topsec Technologies 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 Topsec Technologies Group are associated (or correlated) with Zhengzhou Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhengzhou Coal Mining has no effect on the direction of Topsec Technologies i.e., Topsec Technologies and Zhengzhou Coal go up and down completely randomly.

Pair Corralation between Topsec Technologies and Zhengzhou Coal

Assuming the 90 days trading horizon Topsec Technologies Group is expected to generate 1.69 times more return on investment than Zhengzhou Coal. However, Topsec Technologies is 1.69 times more volatile than Zhengzhou Coal Mining. It trades about 0.25 of its potential returns per unit of risk. Zhengzhou Coal Mining is currently generating about 0.15 per unit of risk. If you would invest  427.00  in Topsec Technologies Group on September 12, 2024 and sell it today you would earn a total of  304.00  from holding Topsec Technologies Group or generate 71.19% return on investment over 90 days.

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

Topsec Technologies Group  vs.  Zhengzhou Coal Mining

Topsec Technologies

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Topsec Technologies Group are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Topsec Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhengzhou Coal Mining

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Topsec Technologies and Zhengzhou Coal

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

The idea behind Topsec Technologies Group and Zhengzhou Coal Mining 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.

Check out your portfolio center.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.