Correlation Between Advanced Technology and Xinke Material

Can any of the company-specific risk be diversified away by investing in both Advanced Technology and Xinke Material 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 Advanced Technology and Xinke Material into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Advanced Technology Materials and Xinke Material, you can compare the effects of market volatilities on Advanced Technology and Xinke Material 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 Advanced Technology with a short position of Xinke Material. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Technology and Xinke Material.

Diversification Opportunities for Advanced Technology and Xinke Material

0.35

Correlation Coefficient

Advanced Technology  Xinke Material

Weak diversification

The 3 months correlation between Advanced and Xinke is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Technology Materials and Xinke Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinke Material and Advanced Technology 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 Advanced Technology Materials are associated (or correlated) with Xinke Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinke Material has no effect on the direction of Advanced Technology i.e., Advanced Technology and Xinke Material go up and down completely randomly.

Pair Corralation between Advanced Technology and Xinke Material

Assuming the 90 days trading horizon Advanced Technology Materials is expected to generate 0.61 times more return on investment than Xinke Material. However, Advanced Technology Materials is 1.65 times less risky than Xinke Material. It trades about 0.13 of its potential returns per unit of risk. Xinke Material is currently generating about -0.03 per unit of risk. If you would invest  1,136  in Advanced Technology Materials on December 26, 2024 and sell it today you would earn a total of  222.00  from holding Advanced Technology Materials or generate 19.54% return on investment over 90 days.

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

Advanced Technology Materials  vs.  Xinke Material

Advanced Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Technology Materials are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Advanced Technology sustained solid returns over the last few months and may actually be approaching a breakup point.

Xinke Material

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xinke Material 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 Advanced Technology and Xinke Material

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

The idea behind Advanced Technology Materials and Xinke Material 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.