Correlation Between China Natural and CDTi Advanced

Can any of the company-specific risk be diversified away by investing in both China Natural and CDTi Advanced 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 CDTi Advanced 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 CDTi Advanced Materials, you can compare the effects of market volatilities on China Natural and CDTi Advanced 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 CDTi Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Natural and CDTi Advanced.

Diversification Opportunities for China Natural and CDTi Advanced

0.2

Correlation Coefficient

China Natural  CDTi Advanced

Modest diversification

The 3 months correlation between China and CDTi is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding China Natural Resources and CDTi Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDTi Advanced Materials 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 CDTi Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDTi Advanced Materials has no effect on the direction of China Natural i.e., China Natural and CDTi Advanced go up and down completely randomly.

Pair Corralation between China Natural and CDTi Advanced

If you would invest  57.00  in China Natural Resources on September 2, 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 Together
Strength	Very Weak
Accuracy	1.56%
Values	Daily Returns

China Natural Resources  vs.  CDTi Advanced Materials

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.

CDTi Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CDTi Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, CDTi Advanced is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with China Natural and CDTi Advanced

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

The idea behind China Natural Resources and CDTi Advanced Materials 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.