Correlation Between Zhengzhou Coal and Tongling Nonferrous

Can any of the company-specific risk be diversified away by investing in both Zhengzhou Coal and Tongling Nonferrous 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 Zhengzhou Coal and Tongling Nonferrous into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhengzhou Coal Mining and Tongling Nonferrous Metals, you can compare the effects of market volatilities on Zhengzhou Coal and Tongling Nonferrous 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 Zhengzhou Coal with a short position of Tongling Nonferrous. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhengzhou Coal and Tongling Nonferrous.

Diversification Opportunities for Zhengzhou Coal and Tongling Nonferrous

0.92

Correlation Coefficient

Zhengzhou Coal  Tongling Nonferrous

Almost no diversification

The 3 months correlation between Zhengzhou and Tongling is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Zhengzhou Coal Mining and Tongling Nonferrous Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tongling Nonferrous and Zhengzhou Coal 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 Zhengzhou Coal Mining are associated (or correlated) with Tongling Nonferrous. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tongling Nonferrous has no effect on the direction of Zhengzhou Coal i.e., Zhengzhou Coal and Tongling Nonferrous go up and down completely randomly.

Pair Corralation between Zhengzhou Coal and Tongling Nonferrous

Assuming the 90 days trading horizon Zhengzhou Coal Mining is expected to generate 0.9 times more return on investment than Tongling Nonferrous. However, Zhengzhou Coal Mining is 1.11 times less risky than Tongling Nonferrous. It trades about 0.16 of its potential returns per unit of risk. Tongling Nonferrous Metals is currently generating about 0.14 per unit of risk. If you would invest  1,067  in Zhengzhou Coal Mining on September 13, 2024 and sell it today you would earn a total of  242.00  from holding Zhengzhou Coal Mining or generate 22.68% return on investment over 90 days.

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

Zhengzhou Coal Mining  vs.  Tongling Nonferrous Metals

Zhengzhou Coal Mining

Risk-Adjusted Performance

12 of 100

Good

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

Tongling Nonferrous

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tongling Nonferrous Metals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tongling Nonferrous sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhengzhou Coal and Tongling Nonferrous

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

The idea behind Zhengzhou Coal Mining and Tongling Nonferrous Metals 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.