Correlation Between Hefei Metalforming and China Aluminum

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

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

Diversification Opportunities for Hefei Metalforming and China Aluminum

0.89

Correlation Coefficient

Hefei Metalforming  China Aluminum

Very poor diversification

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

Pair Corralation between Hefei Metalforming and China Aluminum

Assuming the 90 days trading horizon Hefei Metalforming Mach is expected to generate 2.5 times more return on investment than China Aluminum. However, Hefei Metalforming is 2.5 times more volatile than China Aluminum International. It trades about 0.08 of its potential returns per unit of risk. China Aluminum International is currently generating about -0.09 per unit of risk. If you would invest  732.00  in Hefei Metalforming Mach on August 31, 2024 and sell it today you would earn a total of  38.00  from holding Hefei Metalforming Mach or generate 5.19% return on investment over 90 days.

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

Hefei Metalforming Mach  vs.  China Aluminum International

Hefei Metalforming Mach

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hefei Metalforming Mach are ranked lower than 13 (%) 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.

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.

Pair Trading with Hefei Metalforming and China Aluminum

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

The idea behind Hefei Metalforming Mach and China Aluminum International 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.