Correlation Between Hainan Mining and Hefei Metalforming

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

By analyzing existing cross correlation between Hainan Mining Co and Hefei Metalforming Mach, you can compare the effects of market volatilities on Hainan Mining and Hefei Metalforming 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 Hainan Mining with a short position of Hefei Metalforming. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hainan Mining and Hefei Metalforming.

Diversification Opportunities for Hainan Mining and Hefei Metalforming

0.89

Correlation Coefficient

Hainan Mining  Hefei Metalforming

Very poor diversification

The 3 months correlation between Hainan and Hefei is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Mining Co and Hefei Metalforming Mach in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hefei Metalforming Mach and Hainan Mining 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 Hainan Mining Co are associated (or correlated) with Hefei Metalforming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hefei Metalforming Mach has no effect on the direction of Hainan Mining i.e., Hainan Mining and Hefei Metalforming go up and down completely randomly.

Pair Corralation between Hainan Mining and Hefei Metalforming

Assuming the 90 days trading horizon Hainan Mining is expected to generate 1.48 times less return on investment than Hefei Metalforming. But when comparing it to its historical volatility, Hainan Mining Co is 1.13 times less risky than Hefei Metalforming. It trades about 0.03 of its potential returns per unit of risk. Hefei Metalforming Mach is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  743.00  in Hefei Metalforming Mach on September 13, 2024 and sell it today you would earn a total of  88.00  from holding Hefei Metalforming Mach or generate 11.84% return on investment over 90 days.

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

Hainan Mining Co  vs.  Hefei Metalforming Mach

Hainan Mining

Risk-Adjusted Performance

12 of 100

Good

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

Hefei Metalforming Mach

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hefei Metalforming Mach are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hefei Metalforming sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hainan Mining and Hefei Metalforming

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

The idea behind Hainan Mining Co and Hefei Metalforming Mach 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.