Correlation Between Xinxiang Chemical and China Merchants

Can any of the company-specific risk be diversified away by investing in both Xinxiang Chemical and China Merchants 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 Xinxiang Chemical and China Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xinxiang Chemical Fiber and China Merchants Shekou, you can compare the effects of market volatilities on Xinxiang Chemical and China Merchants 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 Xinxiang Chemical with a short position of China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinxiang Chemical and China Merchants.

Diversification Opportunities for Xinxiang Chemical and China Merchants

0.04

Correlation Coefficient

Xinxiang Chemical  China Merchants

Significant diversification

The 3 months correlation between Xinxiang and China is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Xinxiang Chemical Fiber and China Merchants Shekou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Shekou and Xinxiang Chemical 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 Xinxiang Chemical Fiber are associated (or correlated) with China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Shekou has no effect on the direction of Xinxiang Chemical i.e., Xinxiang Chemical and China Merchants go up and down completely randomly.

Pair Corralation between Xinxiang Chemical and China Merchants

Assuming the 90 days trading horizon Xinxiang Chemical Fiber is expected to generate 1.55 times more return on investment than China Merchants. However, Xinxiang Chemical is 1.55 times more volatile than China Merchants Shekou. It trades about 0.08 of its potential returns per unit of risk. China Merchants Shekou is currently generating about -0.09 per unit of risk. If you would invest  417.00  in Xinxiang Chemical Fiber on December 25, 2024 and sell it today you would earn a total of  43.00  from holding Xinxiang Chemical Fiber or generate 10.31% return on investment over 90 days.

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

Xinxiang Chemical Fiber  vs.  China Merchants Shekou

Xinxiang Chemical Fiber

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xinxiang Chemical Fiber are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinxiang Chemical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Merchants Shekou

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Merchants Shekou has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Xinxiang Chemical and China Merchants

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

The idea behind Xinxiang Chemical Fiber and China Merchants Shekou 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.