Correlation Between China Aluminum and Yunnan Aluminium

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

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

Diversification Opportunities for China Aluminum and Yunnan Aluminium

0.88

Correlation Coefficient

China Aluminum  Yunnan Aluminium

Very poor diversification

The 3 months correlation between China and Yunnan is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding China Aluminum International and Yunnan Aluminium Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yunnan Aluminium and China Aluminum 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 China Aluminum International are associated (or correlated) with Yunnan Aluminium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yunnan Aluminium has no effect on the direction of China Aluminum i.e., China Aluminum and Yunnan Aluminium go up and down completely randomly.

Pair Corralation between China Aluminum and Yunnan Aluminium

Assuming the 90 days trading horizon China Aluminum International is expected to under-perform the Yunnan Aluminium. But the stock apears to be less risky and, when comparing its historical volatility, China Aluminum International is 1.13 times less risky than Yunnan Aluminium. The stock trades about -0.12 of its potential returns per unit of risk. The Yunnan Aluminium Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,422  in Yunnan Aluminium Co on September 22, 2024 and sell it today you would lose (15.00) from holding Yunnan Aluminium Co or give up 1.05% of portfolio value over 90 days.

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

China Aluminum International  vs.  Yunnan Aluminium Co

China Aluminum Inter

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Aluminum International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Aluminum sustained solid returns over the last few months and may actually be approaching a breakup point.

Yunnan Aluminium

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yunnan Aluminium Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yunnan Aluminium sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Aluminum and Yunnan Aluminium

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

The idea behind China Aluminum International and Yunnan Aluminium 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.