Correlation Between Qingdao Foods and Southchip Semiconductor

Can any of the company-specific risk be diversified away by investing in both Qingdao Foods and Southchip Semiconductor 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 Southchip Semiconductor 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 Southchip Semiconductor Technology, you can compare the effects of market volatilities on Qingdao Foods and Southchip Semiconductor 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 Southchip Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Qingdao Foods and Southchip Semiconductor.

Diversification Opportunities for Qingdao Foods and Southchip Semiconductor

0.33

Correlation Coefficient

Qingdao Foods  Southchip Semiconductor

Weak diversification

The 3 months correlation between Qingdao and Southchip is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Qingdao Foods Co and Southchip Semiconductor Techno in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southchip Semiconductor 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 Southchip Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southchip Semiconductor has no effect on the direction of Qingdao Foods i.e., Qingdao Foods and Southchip Semiconductor go up and down completely randomly.

Pair Corralation between Qingdao Foods and Southchip Semiconductor

Assuming the 90 days trading horizon Qingdao Foods Co is expected to under-perform the Southchip Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, Qingdao Foods Co is 1.6 times less risky than Southchip Semiconductor. The stock trades about -0.06 of its potential returns per unit of risk. The Southchip Semiconductor Technology is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,815  in Southchip Semiconductor Technology on December 28, 2024 and sell it today you would lose (142.00) from holding Southchip Semiconductor Technology or give up 3.72% of portfolio value over 90 days.

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

Qingdao Foods Co  vs.  Southchip Semiconductor Techno

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 somewhat strong basic indicators, Qingdao Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Southchip Semiconductor

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Qingdao Foods Co and Southchip Semiconductor Technology 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.