Correlation Between China Natural and Arq

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

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

Diversification Opportunities for China Natural and Arq

-0.42

Correlation Coefficient

China Natural  Arq

Very good diversification

The 3 months correlation between China and Arq is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding China Natural Resources and Arq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arq Inc and China Natural 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 China Natural Resources are associated (or correlated) with Arq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arq Inc has no effect on the direction of China Natural i.e., China Natural and Arq go up and down completely randomly.

Pair Corralation between China Natural and Arq

Given the investment horizon of 90 days China Natural Resources is expected to generate 2.11 times more return on investment than Arq. However, China Natural is 2.11 times more volatile than Arq Inc. It trades about 0.05 of its potential returns per unit of risk. Arq Inc is currently generating about 0.09 per unit of risk. If you would invest  57.00  in China Natural Resources on August 31, 2024 and sell it today you would earn a total of  4.00  from holding China Natural Resources or generate 7.02% return on investment over 90 days.

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

China Natural Resources  vs.  Arq Inc

China Natural Resources

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Natural Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, China Natural reported solid returns over the last few months and may actually be approaching a breakup point.

Arq Inc

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arq Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Arq reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Natural and Arq

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

The idea behind China Natural Resources and Arq Inc 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.