Correlation Between Anhui Jinhe and Inner Mongolia

Can any of the company-specific risk be diversified away by investing in both Anhui Jinhe and Inner Mongolia 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 Anhui Jinhe and Inner Mongolia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Anhui Jinhe Industrial and Inner Mongolia BaoTou, you can compare the effects of market volatilities on Anhui Jinhe and Inner Mongolia 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 Anhui Jinhe with a short position of Inner Mongolia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anhui Jinhe and Inner Mongolia.

Diversification Opportunities for Anhui Jinhe and Inner Mongolia

0.69

Correlation Coefficient

Anhui Jinhe  Inner Mongolia

Poor diversification

The 3 months correlation between Anhui and Inner is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Jinhe Industrial and Inner Mongolia BaoTou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inner Mongolia BaoTou and Anhui Jinhe 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 Anhui Jinhe Industrial are associated (or correlated) with Inner Mongolia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inner Mongolia BaoTou has no effect on the direction of Anhui Jinhe i.e., Anhui Jinhe and Inner Mongolia go up and down completely randomly.

Pair Corralation between Anhui Jinhe and Inner Mongolia

Assuming the 90 days trading horizon Anhui Jinhe is expected to generate 11.41 times less return on investment than Inner Mongolia. But when comparing it to its historical volatility, Anhui Jinhe Industrial is 1.35 times less risky than Inner Mongolia. It trades about 0.02 of its potential returns per unit of risk. Inner Mongolia BaoTou is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  140.00  in Inner Mongolia BaoTou on September 21, 2024 and sell it today you would earn a total of  55.00  from holding Inner Mongolia BaoTou or generate 39.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Anhui Jinhe Industrial  vs.  Inner Mongolia BaoTou

Anhui Jinhe Industrial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Jinhe Industrial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Anhui Jinhe is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inner Mongolia BaoTou

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia BaoTou are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Inner Mongolia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Anhui Jinhe and Inner Mongolia

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

The idea behind Anhui Jinhe Industrial and Inner Mongolia BaoTou 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.