Correlation Between Nine Dragons and Canfor Pulp

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

By analyzing existing cross correlation between Nine Dragons Paper and Canfor Pulp Products, you can compare the effects of market volatilities on Nine Dragons and Canfor Pulp 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 Nine Dragons with a short position of Canfor Pulp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nine Dragons and Canfor Pulp.

Diversification Opportunities for Nine Dragons and Canfor Pulp

0.71

Correlation Coefficient

Nine Dragons  Canfor Pulp

Poor diversification

The 3 months correlation between Nine and Canfor is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Nine Dragons Paper and Canfor Pulp Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canfor Pulp Products and Nine Dragons 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 Nine Dragons Paper are associated (or correlated) with Canfor Pulp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canfor Pulp Products has no effect on the direction of Nine Dragons i.e., Nine Dragons and Canfor Pulp go up and down completely randomly.

Pair Corralation between Nine Dragons and Canfor Pulp

Assuming the 90 days horizon Nine Dragons Paper is expected to generate 1.35 times more return on investment than Canfor Pulp. However, Nine Dragons is 1.35 times more volatile than Canfor Pulp Products. It trades about 0.07 of its potential returns per unit of risk. Canfor Pulp Products is currently generating about 0.02 per unit of risk. If you would invest  37.00  in Nine Dragons Paper on September 12, 2024 and sell it today you would earn a total of  6.00  from holding Nine Dragons Paper or generate 16.22% return on investment over 90 days.

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

Nine Dragons Paper  vs.  Canfor Pulp Products

Nine Dragons Paper

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nine Dragons Paper are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nine Dragons reported solid returns over the last few months and may actually be approaching a breakup point.

Canfor Pulp Products

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canfor Pulp Products are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Canfor Pulp is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nine Dragons and Canfor Pulp

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

The idea behind Nine Dragons Paper and Canfor Pulp Products 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.