Correlation Between Tibet Huayu and Huaibei Mining

Can any of the company-specific risk be diversified away by investing in both Tibet Huayu and Huaibei Mining 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 Tibet Huayu and Huaibei Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tibet Huayu Mining and Huaibei Mining Holdings, you can compare the effects of market volatilities on Tibet Huayu and Huaibei Mining 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 Tibet Huayu with a short position of Huaibei Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tibet Huayu and Huaibei Mining.

Diversification Opportunities for Tibet Huayu and Huaibei Mining

0.23

Correlation Coefficient

Tibet Huayu  Huaibei Mining

Modest diversification

The 3 months correlation between Tibet and Huaibei is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Tibet Huayu Mining and Huaibei Mining Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaibei Mining Holdings and Tibet Huayu 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 Tibet Huayu Mining are associated (or correlated) with Huaibei Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaibei Mining Holdings has no effect on the direction of Tibet Huayu i.e., Tibet Huayu and Huaibei Mining go up and down completely randomly.

Pair Corralation between Tibet Huayu and Huaibei Mining

Assuming the 90 days trading horizon Tibet Huayu Mining is expected to generate 1.41 times more return on investment than Huaibei Mining. However, Tibet Huayu is 1.41 times more volatile than Huaibei Mining Holdings. It trades about 0.19 of its potential returns per unit of risk. Huaibei Mining Holdings is currently generating about 0.1 per unit of risk. If you would invest  1,037  in Tibet Huayu Mining on September 13, 2024 and sell it today you would earn a total of  467.00  from holding Tibet Huayu Mining or generate 45.03% return on investment over 90 days.

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

Tibet Huayu Mining  vs.  Huaibei Mining Holdings

Tibet Huayu Mining

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tibet Huayu Mining are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tibet Huayu sustained solid returns over the last few months and may actually be approaching a breakup point.

Huaibei Mining Holdings

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Tibet Huayu and Huaibei Mining

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

The idea behind Tibet Huayu Mining and Huaibei Mining Holdings 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.