Correlation Between Xiandai Investment and Weihai Honglin

Can any of the company-specific risk be diversified away by investing in both Xiandai Investment and Weihai Honglin 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 Weihai Honglin 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 Weihai Honglin Electronic, you can compare the effects of market volatilities on Xiandai Investment and Weihai Honglin 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 Weihai Honglin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiandai Investment and Weihai Honglin.

Diversification Opportunities for Xiandai Investment and Weihai Honglin

0.29

Correlation Coefficient

Xiandai Investment  Weihai Honglin

Modest diversification

The 3 months correlation between Xiandai and Weihai is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Xiandai Investment Co and Weihai Honglin Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weihai Honglin Electronic 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 Weihai Honglin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weihai Honglin Electronic has no effect on the direction of Xiandai Investment i.e., Xiandai Investment and Weihai Honglin go up and down completely randomly.

Pair Corralation between Xiandai Investment and Weihai Honglin

Assuming the 90 days trading horizon Xiandai Investment is expected to generate 7.5 times less return on investment than Weihai Honglin. But when comparing it to its historical volatility, Xiandai Investment Co is 1.29 times less risky than Weihai Honglin. It trades about 0.02 of its potential returns per unit of risk. Weihai Honglin Electronic is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,319  in Weihai Honglin Electronic on October 10, 2024 and sell it today you would earn a total of  277.00  from holding Weihai Honglin Electronic or generate 21.0% return on investment over 90 days.

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

Xiandai Investment Co  vs.  Weihai Honglin Electronic

Xiandai Investment

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xiandai Investment Co are ranked lower than 1 (%) 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.

Weihai Honglin Electronic

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Xiandai Investment and Weihai Honglin

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

The idea behind Xiandai Investment Co and Weihai Honglin Electronic 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.