Correlation Between Weichai Heavy and Ziel Home

Can any of the company-specific risk be diversified away by investing in both Weichai Heavy and Ziel Home 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 Weichai Heavy and Ziel Home into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Weichai Heavy Machinery and Ziel Home Furnishing, you can compare the effects of market volatilities on Weichai Heavy and Ziel Home 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 Weichai Heavy with a short position of Ziel Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weichai Heavy and Ziel Home.

Diversification Opportunities for Weichai Heavy and Ziel Home

0.35

Correlation Coefficient

Weichai Heavy  Ziel Home

Weak diversification

The 3 months correlation between Weichai and Ziel is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Weichai Heavy Machinery and Ziel Home Furnishing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ziel Home Furnishing and Weichai Heavy 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 Weichai Heavy Machinery are associated (or correlated) with Ziel Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ziel Home Furnishing has no effect on the direction of Weichai Heavy i.e., Weichai Heavy and Ziel Home go up and down completely randomly.

Pair Corralation between Weichai Heavy and Ziel Home

Assuming the 90 days trading horizon Weichai Heavy Machinery is expected to generate 2.2 times more return on investment than Ziel Home. However, Weichai Heavy is 2.2 times more volatile than Ziel Home Furnishing. It trades about 0.33 of its potential returns per unit of risk. Ziel Home Furnishing is currently generating about -0.23 per unit of risk. If you would invest  1,243  in Weichai Heavy Machinery on October 3, 2024 and sell it today you would earn a total of  487.00  from holding Weichai Heavy Machinery or generate 39.18% return on investment over 90 days.

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

Weichai Heavy Machinery  vs.  Ziel Home Furnishing

Weichai Heavy Machinery

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Weichai Heavy Machinery are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Weichai Heavy sustained solid returns over the last few months and may actually be approaching a breakup point.

Ziel Home Furnishing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ziel Home Furnishing 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 Weichai Heavy and Ziel Home

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

The idea behind Weichai Heavy Machinery and Ziel Home Furnishing 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.