Correlation Between Chernan Metal and China Metal
Can any of the company-specific risk be diversified away by investing in both Chernan Metal and China Metal 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 Chernan Metal and China Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chernan Metal Industrial and China Metal Products, you can compare the effects of market volatilities on Chernan Metal and China Metal 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 Chernan Metal with a short position of China Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chernan Metal and China Metal.
Diversification Opportunities for Chernan Metal and China Metal
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Chernan and China is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Chernan Metal Industrial and China Metal Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Metal Products and Chernan 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 Chernan Metal Industrial are associated (or correlated) with China Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Metal Products has no effect on the direction of Chernan Metal i.e., Chernan Metal and China Metal go up and down completely randomly.
Pair Corralation between Chernan Metal and China Metal
Assuming the 90 days trading horizon Chernan Metal Industrial is expected to generate 2.27 times more return on investment than China Metal. However, Chernan Metal is 2.27 times more volatile than China Metal Products. It trades about -0.1 of its potential returns per unit of risk. China Metal Products is currently generating about -0.24 per unit of risk. If you would invest 4,010 in Chernan Metal Industrial on November 3, 2024 and sell it today you would lose (385.00) from holding Chernan Metal Industrial or give up 9.6% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Chernan Metal Industrial vs. China Metal Products
Performance |
| Timeline |
| Chernan Metal Industrial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| China Metal Products |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Chernan Metal and China Metal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chernan Metal and China Metal
The main advantage of trading using opposite Chernan Metal and China Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chernan Metal position performs unexpectedly, China Metal 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 China Metal will offset losses from the drop in China Metal's long position.The idea behind Chernan Metal Industrial and China Metal 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.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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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