Correlation Between Qingdao Foods and Xinjiang Communications

Can any of the company-specific risk be diversified away by investing in both Qingdao Foods and Xinjiang Communications 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 Qingdao Foods and Xinjiang Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Qingdao Foods Co and Xinjiang Communications Construction, you can compare the effects of market volatilities on Qingdao Foods and Xinjiang Communications 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 Qingdao Foods with a short position of Xinjiang Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Qingdao Foods and Xinjiang Communications.

Diversification Opportunities for Qingdao Foods and Xinjiang Communications

0.45

Correlation Coefficient

Qingdao Foods  Xinjiang Communications

Very weak diversification

The 3 months correlation between Qingdao and Xinjiang is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Qingdao Foods Co and Xinjiang Communications Constr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Communications and Qingdao Foods 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 Qingdao Foods Co are associated (or correlated) with Xinjiang Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Communications has no effect on the direction of Qingdao Foods i.e., Qingdao Foods and Xinjiang Communications go up and down completely randomly.

Pair Corralation between Qingdao Foods and Xinjiang Communications

Assuming the 90 days trading horizon Qingdao Foods Co is expected to under-perform the Xinjiang Communications. But the stock apears to be less risky and, when comparing its historical volatility, Qingdao Foods Co is 1.31 times less risky than Xinjiang Communications. The stock trades about -0.07 of its potential returns per unit of risk. The Xinjiang Communications Construction is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,178  in Xinjiang Communications Construction on December 26, 2024 and sell it today you would lose (66.00) from holding Xinjiang Communications Construction or give up 5.6% of portfolio value over 90 days.

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

Qingdao Foods Co  vs.  Xinjiang Communications Constr

Qingdao Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Qingdao Foods Co 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.

Xinjiang Communications

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Qingdao Foods and Xinjiang Communications

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

The idea behind Qingdao Foods Co and Xinjiang Communications Construction 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.