Correlation Between Baoshan Iron and Zhongfu Shenying

Can any of the company-specific risk be diversified away by investing in both Baoshan Iron 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 Baoshan Iron and Zhongfu Shenying 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 Zhongfu Shenying Carbon, you can compare the effects of market volatilities on Baoshan Iron 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 Baoshan Iron with a short position of Zhongfu Shenying. Check out your portfolio center. Please also check ongoing floating volatility patterns of Baoshan Iron and Zhongfu Shenying.

Diversification Opportunities for Baoshan Iron and Zhongfu Shenying

0.91

Correlation Coefficient

Baoshan Iron  Zhongfu Shenying

Almost no diversification

The 3 months correlation between Baoshan and Zhongfu is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Baoshan Iron Steel 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 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 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 Baoshan Iron i.e., Baoshan Iron and Zhongfu Shenying go up and down completely randomly.

Pair Corralation between Baoshan Iron and Zhongfu Shenying

Assuming the 90 days trading horizon Baoshan Iron is expected to generate 1.26 times less return on investment than Zhongfu Shenying. But when comparing it to its historical volatility, Baoshan Iron Steel is 1.6 times less risky than Zhongfu Shenying. It trades about 0.12 of its potential returns per unit of risk. Zhongfu Shenying Carbon is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,729  in Zhongfu Shenying Carbon on September 5, 2024 and sell it today you would earn a total of  327.00  from holding Zhongfu Shenying Carbon or generate 18.91% 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.  Zhongfu Shenying Carbon

Baoshan Iron Steel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baoshan Iron Steel are ranked lower than 9 (%) 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.

Zhongfu Shenying Carbon

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongfu Shenying Carbon are ranked lower than 7 (%) 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 Baoshan Iron and Zhongfu Shenying

The main advantage of trading using opposite Baoshan Iron and Zhongfu Shenying positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baoshan Iron 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 Baoshan Iron Steel 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.