Correlation Between Weichai Heavy and ButOne Information

Can any of the company-specific risk be diversified away by investing in both Weichai Heavy and ButOne Information 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 ButOne Information 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 ButOne Information Corp, you can compare the effects of market volatilities on Weichai Heavy and ButOne Information 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 ButOne Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weichai Heavy and ButOne Information.

Diversification Opportunities for Weichai Heavy and ButOne Information

0.78

Correlation Coefficient

Weichai Heavy  ButOne Information

Poor diversification

The 3 months correlation between Weichai and ButOne is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Weichai Heavy Machinery and ButOne Information Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ButOne Information Corp 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 ButOne Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ButOne Information Corp has no effect on the direction of Weichai Heavy i.e., Weichai Heavy and ButOne Information go up and down completely randomly.

Pair Corralation between Weichai Heavy and ButOne Information

Assuming the 90 days trading horizon Weichai Heavy is expected to generate 1.76 times less return on investment than ButOne Information. In addition to that, Weichai Heavy is 1.24 times more volatile than ButOne Information Corp. It trades about 0.05 of its total potential returns per unit of risk. ButOne Information Corp is currently generating about 0.1 per unit of volatility. If you would invest  2,223  in ButOne Information Corp on September 22, 2024 and sell it today you would earn a total of  142.00  from holding ButOne Information Corp or generate 6.39% return on investment over 90 days.

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

Weichai Heavy Machinery  vs.  ButOne Information Corp

Weichai Heavy Machinery

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Weichai Heavy Machinery are ranked lower than 14 (%) 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.

ButOne Information Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ButOne Information Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ButOne Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Weichai Heavy and ButOne Information

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

The idea behind Weichai Heavy Machinery and ButOne Information 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.