Correlation Between China Metal and Vanguard International
Can any of the company-specific risk be diversified away by investing in both China Metal and Vanguard International 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 Metal and Vanguard International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Metal Products and Vanguard International Semiconductor, you can compare the effects of market volatilities on China Metal and Vanguard International 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 Metal with a short position of Vanguard International. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Metal and Vanguard International.
Diversification Opportunities for China Metal and Vanguard International
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Vanguard is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding China Metal Products and Vanguard International Semicon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard International and China Metal 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 Metal Products are associated (or correlated) with Vanguard International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard International has no effect on the direction of China Metal i.e., China Metal and Vanguard International go up and down completely randomly.
Pair Corralation between China Metal and Vanguard International
Assuming the 90 days trading horizon China Metal is expected to generate 1.37 times less return on investment than Vanguard International. But when comparing it to its historical volatility, China Metal Products is 1.31 times less risky than Vanguard International. It trades about 0.02 of its potential returns per unit of risk. Vanguard International Semiconductor is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 7,677 in Vanguard International Semiconductor on September 3, 2024 and sell it today you would earn a total of 1,273 from holding Vanguard International Semiconductor or generate 16.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Metal Products vs. Vanguard International Semicon
Performance |
| Timeline |
| China Metal Products |
| Vanguard International |
China Metal and Vanguard International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Metal and Vanguard International
The main advantage of trading using opposite China Metal and Vanguard International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Metal position performs unexpectedly, Vanguard International 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 Vanguard International will offset losses from the drop in Vanguard International's long position.The idea behind China Metal Products and Vanguard International Semiconductor 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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