Correlation Between China Aluminum and Chongqing Shunbo

Can any of the company-specific risk be diversified away by investing in both China Aluminum and Chongqing Shunbo 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 Chongqing Shunbo 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 Chongqing Shunbo Aluminum, you can compare the effects of market volatilities on China Aluminum and Chongqing Shunbo 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 Chongqing Shunbo. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Aluminum and Chongqing Shunbo.

Diversification Opportunities for China Aluminum and Chongqing Shunbo

0.94

Correlation Coefficient

China Aluminum  Chongqing Shunbo

Almost no diversification

The 3 months correlation between China and Chongqing is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding China Aluminum International and Chongqing Shunbo Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Shunbo Aluminum 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 Chongqing Shunbo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Shunbo Aluminum has no effect on the direction of China Aluminum i.e., China Aluminum and Chongqing Shunbo go up and down completely randomly.

Pair Corralation between China Aluminum and Chongqing Shunbo

Assuming the 90 days trading horizon China Aluminum is expected to generate 1.09 times less return on investment than Chongqing Shunbo. But when comparing it to its historical volatility, China Aluminum International is 1.04 times less risky than Chongqing Shunbo. It trades about 0.15 of its potential returns per unit of risk. Chongqing Shunbo Aluminum is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  522.00  in Chongqing Shunbo Aluminum on August 31, 2024 and sell it today you would earn a total of  143.00  from holding Chongqing Shunbo Aluminum or generate 27.39% return on investment over 90 days.

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

China Aluminum International  vs.  Chongqing Shunbo Aluminum

China Aluminum Inter

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Aluminum International are ranked lower than 11 (%) 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.

Chongqing Shunbo Aluminum

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Shunbo Aluminum are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Shunbo sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Aluminum and Chongqing Shunbo

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

The idea behind China Aluminum International and Chongqing Shunbo Aluminum 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.