Correlation Between Sichuan Changhong and China Aluminum

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

By analyzing existing cross correlation between Sichuan Changhong Electric and China Aluminum International, you can compare the effects of market volatilities on Sichuan Changhong and China Aluminum 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 Sichuan Changhong with a short position of China Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Changhong and China Aluminum.

Diversification Opportunities for Sichuan Changhong and China Aluminum

0.74

Correlation Coefficient

Sichuan Changhong  China Aluminum

Poor diversification

The 3 months correlation between Sichuan and China is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Changhong Electric and China Aluminum International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Aluminum Inter and Sichuan Changhong 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 Sichuan Changhong Electric are associated (or correlated) with China Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Aluminum Inter has no effect on the direction of Sichuan Changhong i.e., Sichuan Changhong and China Aluminum go up and down completely randomly.

Pair Corralation between Sichuan Changhong and China Aluminum

Assuming the 90 days trading horizon Sichuan Changhong Electric is expected to generate 1.56 times more return on investment than China Aluminum. However, Sichuan Changhong is 1.56 times more volatile than China Aluminum International. It trades about 0.01 of its potential returns per unit of risk. China Aluminum International is currently generating about -0.08 per unit of risk. If you would invest  1,081  in Sichuan Changhong Electric on September 30, 2024 and sell it today you would lose (3.00) from holding Sichuan Changhong Electric or give up 0.28% of portfolio value over 90 days.

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

Sichuan Changhong Electric  vs.  China Aluminum International

Sichuan Changhong

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Changhong Electric are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Changhong sustained solid returns over the last few months and may actually be approaching a breakup point.

China Aluminum Inter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Aluminum International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Aluminum is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sichuan Changhong and China Aluminum

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

The idea behind Sichuan Changhong Electric and China Aluminum International 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.