Correlation Between China Natural and Brazil Potash

Can any of the company-specific risk be diversified away by investing in both China Natural and Brazil Potash 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 Natural and Brazil Potash into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Natural Resources and Brazil Potash Corp, you can compare the effects of market volatilities on China Natural and Brazil Potash 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 Natural with a short position of Brazil Potash. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Natural and Brazil Potash.

Diversification Opportunities for China Natural and Brazil Potash

0.47

Correlation Coefficient

China Natural  Brazil Potash

Very weak diversification

The 3 months correlation between China and Brazil is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding China Natural Resources and Brazil Potash Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brazil Potash Corp and China Natural 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 Natural Resources are associated (or correlated) with Brazil Potash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brazil Potash Corp has no effect on the direction of China Natural i.e., China Natural and Brazil Potash go up and down completely randomly.

Pair Corralation between China Natural and Brazil Potash

Given the investment horizon of 90 days China Natural Resources is expected to under-perform the Brazil Potash. But the stock apears to be less risky and, when comparing its historical volatility, China Natural Resources is 1.46 times less risky than Brazil Potash. The stock trades about -0.02 of its potential returns per unit of risk. The Brazil Potash Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  221.00  in Brazil Potash Corp on May 7, 2025 and sell it today you would lose (57.00) from holding Brazil Potash Corp or give up 25.79% of portfolio value over 90 days.

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

China Natural Resources  vs.  Brazil Potash Corp

China Natural Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest abnormal performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Brazil Potash Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brazil Potash Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Brazil Potash is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with China Natural and Brazil Potash

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

The idea behind China Natural Resources and Brazil Potash Corp 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 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.