Correlation Between China Metal and Microtips Technology

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

By analyzing existing cross correlation between China Metal Products and Microtips Technology, you can compare the effects of market volatilities on China Metal and Microtips Technology 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 China Metal with a short position of Microtips Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Metal and Microtips Technology.

Diversification Opportunities for China Metal and Microtips Technology

0.04

Correlation Coefficient

China Metal  Microtips Technology

Significant diversification

The 3 months correlation between China and Microtips is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding China Metal Products and Microtips Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microtips Technology and China 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 China Metal Products are associated (or correlated) with Microtips Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microtips Technology has no effect on the direction of China Metal i.e., China Metal and Microtips Technology go up and down completely randomly.

Pair Corralation between China Metal and Microtips Technology

Assuming the 90 days trading horizon China Metal Products is expected to under-perform the Microtips Technology. But the stock apears to be less risky and, when comparing its historical volatility, China Metal Products is 1.35 times less risky than Microtips Technology. The stock trades about -0.14 of its potential returns per unit of risk. The Microtips Technology is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,655  in Microtips Technology on September 13, 2024 and sell it today you would earn a total of  20.00  from holding Microtips Technology or generate 0.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

China Metal Products  vs.  Microtips Technology

China Metal Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Metal Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Microtips Technology

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microtips Technology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Microtips Technology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Metal and Microtips Technology

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

The idea behind China Metal Products and Microtips Technology 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.