Correlation Between Aluminum and China Hongqiao

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

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

Diversification Opportunities for Aluminum and China Hongqiao

-0.63

Correlation Coefficient

Aluminum  China Hongqiao

Excellent diversification

The 3 months correlation between Aluminum and China is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum of and China Hongqiao Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Hongqiao Group and Aluminum 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 Aluminum of are associated (or correlated) with China Hongqiao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Hongqiao Group has no effect on the direction of Aluminum i.e., Aluminum and China Hongqiao go up and down completely randomly.

Pair Corralation between Aluminum and China Hongqiao

Assuming the 90 days horizon Aluminum of is expected to under-perform the China Hongqiao. In addition to that, Aluminum is 6.5 times more volatile than China Hongqiao Group. It trades about -0.02 of its total potential returns per unit of risk. China Hongqiao Group is currently generating about 0.13 per unit of volatility. If you would invest  1,250  in China Hongqiao Group on September 22, 2024 and sell it today you would earn a total of  76.00  from holding China Hongqiao Group or generate 6.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

Aluminum of  vs.  China Hongqiao Group

Aluminum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aluminum of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Aluminum is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Hongqiao Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Hongqiao Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, China Hongqiao is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aluminum and China Hongqiao

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

The idea behind Aluminum of and China Hongqiao 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.

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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.