Correlation Between Xiandai Investment and Zhejiang Xiantong

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

Diversification Opportunities for Xiandai Investment and Zhejiang Xiantong

-0.05

Correlation Coefficient

Xiandai Investment  Zhejiang Xiantong

Good diversification

The 3 months correlation between Xiandai and Zhejiang is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Xiandai Investment Co and Zhejiang Xiantong RubberPlasti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Xiantong 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 Zhejiang Xiantong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Xiantong has no effect on the direction of Xiandai Investment i.e., Xiandai Investment and Zhejiang Xiantong go up and down completely randomly.

Pair Corralation between Xiandai Investment and Zhejiang Xiantong

Assuming the 90 days trading horizon Xiandai Investment Co is expected to under-perform the Zhejiang Xiantong. But the stock apears to be less risky and, when comparing its historical volatility, Xiandai Investment Co is 1.34 times less risky than Zhejiang Xiantong. The stock trades about -0.06 of its potential returns per unit of risk. The Zhejiang Xiantong RubberPlastic is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,387  in Zhejiang Xiantong RubberPlastic on December 26, 2024 and sell it today you would earn a total of  4.00  from holding Zhejiang Xiantong RubberPlastic or generate 0.29% 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.  Zhejiang Xiantong RubberPlasti

Xiandai Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xiandai Investment Co has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Zhejiang Xiantong

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zhejiang Xiantong RubberPlastic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Zhejiang Xiantong 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 Zhejiang Xiantong

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

The idea behind Xiandai Investment Co and Zhejiang Xiantong RubberPlastic 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.