Correlation Between Algoma Central and China Merchants

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

By analyzing existing cross correlation between Algoma Central and China Merchants Port, you can compare the effects of market volatilities on Algoma Central and China Merchants 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 Algoma Central with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Algoma Central and China Merchants.

Diversification Opportunities for Algoma Central and China Merchants

0.52

Correlation Coefficient

Algoma Central  China Merchants

Very weak diversification

The 3 months correlation between Algoma and China is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Algoma Central and China Merchants Port in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Port and Algoma Central 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 Algoma Central are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Port has no effect on the direction of Algoma Central i.e., Algoma Central and China Merchants go up and down completely randomly.

Pair Corralation between Algoma Central and China Merchants

Assuming the 90 days horizon Algoma Central is expected to generate 0.23 times more return on investment than China Merchants. However, Algoma Central is 4.28 times less risky than China Merchants. It trades about -0.09 of its potential returns per unit of risk. China Merchants Port is currently generating about -0.06 per unit of risk. If you would invest  1,090  in Algoma Central on September 23, 2024 and sell it today you would lose (15.00) from holding Algoma Central or give up 1.38% of portfolio value over 90 days.

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

Algoma Central  vs.  China Merchants Port

Algoma Central

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Algoma Central are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking indicators, Algoma Central is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

China Merchants Port

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Port are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical indicators, China Merchants reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algoma Central and China Merchants

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

The idea behind Algoma Central and China Merchants Port 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.