Correlation Between Big 5 and Aluminumof China
Can any of the company-specific risk be diversified away by investing in both Big 5 and Aluminumof China 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 Big 5 and Aluminumof China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big 5 Sporting and Aluminum of, you can compare the effects of market volatilities on Big 5 and Aluminumof China 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 Big 5 with a short position of Aluminumof China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Aluminumof China.
Diversification Opportunities for Big 5 and Aluminumof China
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Big and Aluminumof is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Aluminum of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminumof China and Big 5 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 Big 5 Sporting are associated (or correlated) with Aluminumof China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminumof China has no effect on the direction of Big 5 i.e., Big 5 and Aluminumof China go up and down completely randomly.
Pair Corralation between Big 5 and Aluminumof China
Assuming the 90 days horizon Big 5 Sporting is expected to under-perform the Aluminumof China. But the stock apears to be less risky and, when comparing its historical volatility, Big 5 Sporting is 1.14 times less risky than Aluminumof China. The stock trades about -0.11 of its potential returns per unit of risk. The Aluminum of is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 57.00 in Aluminum of on August 29, 2024 and sell it today you would earn a total of 1.00 from holding Aluminum of or generate 1.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Big 5 Sporting vs. Aluminum of
Performance |
| Timeline |
| Big 5 Sporting |
| Aluminumof China |
Big 5 and Aluminumof China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Big 5 and Aluminumof China
The main advantage of trading using opposite Big 5 and Aluminumof China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, Aluminumof China 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 Aluminumof China will offset losses from the drop in Aluminumof China's long position.The idea behind Big 5 Sporting and Aluminum of 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.| Aluminumof China vs. SCANSOURCE | Aluminumof China vs. CITY OFFICE REIT | Aluminumof China vs. Tencent Music Entertainment | Aluminumof China vs. ZINC MEDIA GR |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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