Correlation Between Xiandai Investment and Xilinmen Furniture

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

Diversification Opportunities for Xiandai Investment and Xilinmen Furniture

-0.21

Correlation Coefficient

Xiandai Investment  Xilinmen Furniture

Very good diversification

The 3 months correlation between Xiandai and Xilinmen is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Xiandai Investment Co and Xilinmen Furniture Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xilinmen Furniture 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 Xilinmen Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xilinmen Furniture has no effect on the direction of Xiandai Investment i.e., Xiandai Investment and Xilinmen Furniture go up and down completely randomly.

Pair Corralation between Xiandai Investment and Xilinmen Furniture

Assuming the 90 days trading horizon Xiandai Investment Co is expected to generate 0.85 times more return on investment than Xilinmen Furniture. However, Xiandai Investment Co is 1.18 times less risky than Xilinmen Furniture. It trades about 0.02 of its potential returns per unit of risk. Xilinmen Furniture Co is currently generating about -0.03 per unit of risk. If you would invest  417.00  in Xiandai Investment Co on October 10, 2024 and sell it today you would earn a total of  6.00  from holding Xiandai Investment Co or generate 1.44% return on investment over 90 days.

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

Xiandai Investment Co  vs.  Xilinmen Furniture Co

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.

Xilinmen Furniture

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xilinmen Furniture Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Xilinmen Furniture is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Xiandai Investment and Xilinmen Furniture

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

The idea behind Xiandai Investment Co and Xilinmen Furniture 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.