Correlation Between Chengdu Xingrong and Xiamen Insight

Can any of the company-specific risk be diversified away by investing in both Chengdu Xingrong and Xiamen Insight 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 Chengdu Xingrong and Xiamen Insight into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chengdu Xingrong Investment and Xiamen Insight Investment, you can compare the effects of market volatilities on Chengdu Xingrong and Xiamen Insight 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 Chengdu Xingrong with a short position of Xiamen Insight. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chengdu Xingrong and Xiamen Insight.

Diversification Opportunities for Chengdu Xingrong and Xiamen Insight

0.42

Correlation Coefficient

Chengdu Xingrong  Xiamen Insight

Very weak diversification

The 3 months correlation between Chengdu and Xiamen is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Chengdu Xingrong Investment and Xiamen Insight Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Insight Investment and Chengdu Xingrong 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 Chengdu Xingrong Investment are associated (or correlated) with Xiamen Insight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Insight Investment has no effect on the direction of Chengdu Xingrong i.e., Chengdu Xingrong and Xiamen Insight go up and down completely randomly.

Pair Corralation between Chengdu Xingrong and Xiamen Insight

Assuming the 90 days trading horizon Chengdu Xingrong is expected to generate 2.17 times less return on investment than Xiamen Insight. But when comparing it to its historical volatility, Chengdu Xingrong Investment is 2.08 times less risky than Xiamen Insight. It trades about 0.05 of its potential returns per unit of risk. Xiamen Insight Investment is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,070  in Xiamen Insight Investment on October 24, 2024 and sell it today you would earn a total of  2,010  from holding Xiamen Insight Investment or generate 97.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Chengdu Xingrong Investment  vs.  Xiamen Insight Investment

Chengdu Xingrong Inv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chengdu Xingrong Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Xiamen Insight Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xiamen Insight Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Chengdu Xingrong and Xiamen Insight

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

The idea behind Chengdu Xingrong Investment and Xiamen Insight Investment 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.