Correlation Between China Aluminum and Hainan Haiqi

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

Diversification Opportunities for China Aluminum and Hainan Haiqi

0.78

Correlation Coefficient

China Aluminum  Hainan Haiqi

Poor diversification

The 3 months correlation between China and Hainan is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding China Aluminum International and Hainan Haiqi Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Haiqi Transpo 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 Hainan Haiqi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Haiqi Transpo has no effect on the direction of China Aluminum i.e., China Aluminum and Hainan Haiqi go up and down completely randomly.

Pair Corralation between China Aluminum and Hainan Haiqi

Assuming the 90 days trading horizon China Aluminum International is expected to generate 0.55 times more return on investment than Hainan Haiqi. However, China Aluminum International is 1.83 times less risky than Hainan Haiqi. It trades about -0.08 of its potential returns per unit of risk. Hainan Haiqi Transportation is currently generating about -0.06 per unit of risk. If you would invest  473.00  in China Aluminum International on September 29, 2024 and sell it today you would lose (16.00) from holding China Aluminum International or give up 3.38% of portfolio value over 90 days.

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

China Aluminum International  vs.  Hainan Haiqi Transportation

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.

Hainan Haiqi Transpo

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Haiqi Transportation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan Haiqi may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Aluminum and Hainan Haiqi

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

The idea behind China Aluminum International and Hainan Haiqi Transportation 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.