Correlation Between Tianjin Capital and Sovereign Metals

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

By analyzing existing cross correlation between Tianjin Capital Environmental and Sovereign Metals Limited, you can compare the effects of market volatilities on Tianjin Capital and Sovereign Metals 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 Tianjin Capital with a short position of Sovereign Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tianjin Capital and Sovereign Metals.

Diversification Opportunities for Tianjin Capital and Sovereign Metals

0.53

Correlation Coefficient

Tianjin Capital  Sovereign Metals

Very weak diversification

The 3 months correlation between Tianjin and Sovereign is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Tianjin Capital Environmental and Sovereign Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sovereign Metals and Tianjin Capital 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 Tianjin Capital Environmental are associated (or correlated) with Sovereign Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sovereign Metals has no effect on the direction of Tianjin Capital i.e., Tianjin Capital and Sovereign Metals go up and down completely randomly.

Pair Corralation between Tianjin Capital and Sovereign Metals

Assuming the 90 days horizon Tianjin Capital Environmental is expected to generate 1.03 times more return on investment than Sovereign Metals. However, Tianjin Capital is 1.03 times more volatile than Sovereign Metals Limited. It trades about 0.08 of its potential returns per unit of risk. Sovereign Metals Limited is currently generating about 0.04 per unit of risk. If you would invest  34.00  in Tianjin Capital Environmental on September 26, 2024 and sell it today you would earn a total of  5.00  from holding Tianjin Capital Environmental or generate 14.71% return on investment over 90 days.

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

Tianjin Capital Environmental  vs.  Sovereign Metals Limited

Tianjin Capital Envi

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Capital Environmental are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tianjin Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Sovereign Metals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sovereign Metals Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sovereign Metals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tianjin Capital and Sovereign Metals

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

The idea behind Tianjin Capital Environmental and Sovereign Metals Limited 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.