Correlation Between Shanghai Lingyun and Tianshan Aluminum

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

By analyzing existing cross correlation between Shanghai Lingyun Industries and Tianshan Aluminum Group, you can compare the effects of market volatilities on Shanghai Lingyun and Tianshan 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 Shanghai Lingyun with a short position of Tianshan Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Lingyun and Tianshan Aluminum.

Diversification Opportunities for Shanghai Lingyun and Tianshan Aluminum

0.92

Correlation Coefficient

Shanghai Lingyun  Tianshan Aluminum

Almost no diversification

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

Pair Corralation between Shanghai Lingyun and Tianshan Aluminum

Assuming the 90 days trading horizon Shanghai Lingyun Industries is expected to generate 1.51 times more return on investment than Tianshan Aluminum. However, Shanghai Lingyun is 1.51 times more volatile than Tianshan Aluminum Group. It trades about 0.15 of its potential returns per unit of risk. Tianshan Aluminum Group is currently generating about 0.13 per unit of risk. If you would invest  26.00  in Shanghai Lingyun Industries on August 31, 2024 and sell it today you would earn a total of  11.00  from holding Shanghai Lingyun Industries or generate 42.31% return on investment over 90 days.

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

Shanghai Lingyun Industries  vs.  Tianshan Aluminum Group

Shanghai Lingyun Ind

Risk-Adjusted Performance

12 of 100

OK

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

Tianshan Aluminum

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tianshan Aluminum Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianshan Aluminum sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Lingyun and Tianshan Aluminum

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

The idea behind Shanghai Lingyun Industries and Tianshan Aluminum Group 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.