Correlation Between Xiandai Investment and Sunwave Communications

Can any of the company-specific risk be diversified away by investing in both Xiandai Investment and Sunwave Communications 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 Xiandai Investment and Sunwave Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Xiandai Investment and Sunwave Communications

0.7

Correlation Coefficient

Xiandai Investment  Sunwave Communications

Poor diversification

The 3 months correlation between Xiandai and Sunwave is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Xiandai Investment Co and Sunwave Communications Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunwave Communications and Xiandai Investment 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 Xiandai Investment Co are associated (or correlated) with Sunwave Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunwave Communications has no effect on the direction of Xiandai Investment i.e., Xiandai Investment and Sunwave Communications go up and down completely randomly.

Pair Corralation between Xiandai Investment and Sunwave Communications

Assuming the 90 days trading horizon Xiandai Investment Co is expected to generate 0.29 times more return on investment than Sunwave Communications. However, Xiandai Investment Co is 3.39 times less risky than Sunwave Communications. It trades about -0.26 of its potential returns per unit of risk. Sunwave Communications Co is currently generating about -0.13 per unit of risk. If you would invest  466.00  in Xiandai Investment Co on October 11, 2024 and sell it today you would lose (43.00) from holding Xiandai Investment Co or give up 9.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Xiandai Investment Co  vs.  Sunwave Communications Co

Xiandai Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xiandai Investment Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Xiandai Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sunwave Communications

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sunwave Communications Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sunwave Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xiandai Investment and Sunwave Communications

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

The idea behind Xiandai Investment Co and Sunwave Communications Co 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.