Correlation Between Baoshan Iron and CITIC Metal

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

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

Diversification Opportunities for Baoshan Iron and CITIC Metal

0.91

Correlation Coefficient

Baoshan Iron  CITIC Metal

Almost no diversification

The 3 months correlation between Baoshan and CITIC is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Baoshan Iron Steel and CITIC Metal Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC Metal and Baoshan Iron 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 Baoshan Iron Steel are associated (or correlated) with CITIC Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC Metal has no effect on the direction of Baoshan Iron i.e., Baoshan Iron and CITIC Metal go up and down completely randomly.

Pair Corralation between Baoshan Iron and CITIC Metal

Assuming the 90 days trading horizon Baoshan Iron is expected to generate 1.01 times less return on investment than CITIC Metal. In addition to that, Baoshan Iron is 1.15 times more volatile than CITIC Metal Co. It trades about 0.11 of its total potential returns per unit of risk. CITIC Metal Co is currently generating about 0.13 per unit of volatility. If you would invest  688.00  in CITIC Metal Co on September 4, 2024 and sell it today you would earn a total of  115.00  from holding CITIC Metal Co or generate 16.72% return on investment over 90 days.

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

Baoshan Iron Steel  vs.  CITIC Metal Co

Baoshan Iron Steel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baoshan Iron Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Baoshan Iron sustained solid returns over the last few months and may actually be approaching a breakup point.

CITIC Metal

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Metal Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, CITIC Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baoshan Iron and CITIC Metal

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

The idea behind Baoshan Iron Steel and CITIC Metal 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.