Correlation Between Inner Mongolia and Zhongfu Shenying

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

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

Diversification Opportunities for Inner Mongolia and Zhongfu Shenying

0.75

Correlation Coefficient

Inner Mongolia  Zhongfu Shenying

Poor diversification

The 3 months correlation between Inner and Zhongfu is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Inner Mongolia BaoTou and Zhongfu Shenying Carbon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongfu Shenying Carbon and Inner Mongolia 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 Inner Mongolia BaoTou are associated (or correlated) with Zhongfu Shenying. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongfu Shenying Carbon has no effect on the direction of Inner Mongolia i.e., Inner Mongolia and Zhongfu Shenying go up and down completely randomly.

Pair Corralation between Inner Mongolia and Zhongfu Shenying

Assuming the 90 days trading horizon Inner Mongolia BaoTou is expected to generate 0.86 times more return on investment than Zhongfu Shenying. However, Inner Mongolia BaoTou is 1.16 times less risky than Zhongfu Shenying. It trades about 0.22 of its potential returns per unit of risk. Zhongfu Shenying Carbon is currently generating about 0.15 per unit of risk. If you would invest  139.00  in Inner Mongolia BaoTou on September 13, 2024 and sell it today you would earn a total of  72.00  from holding Inner Mongolia BaoTou or generate 51.8% return on investment over 90 days.

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

Inner Mongolia BaoTou  vs.  Zhongfu Shenying Carbon

Inner Mongolia BaoTou

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Inner Mongolia BaoTou are ranked lower than 17 (%) 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.

Zhongfu Shenying Carbon

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Inner Mongolia and Zhongfu Shenying

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

The idea behind Inner Mongolia BaoTou and Zhongfu Shenying Carbon 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.