Correlation Between Western Metal and Suzhou Xingye

Can any of the company-specific risk be diversified away by investing in both Western Metal and Suzhou Xingye 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 Western Metal and Suzhou Xingye into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Western Metal and Suzhou Xingye

0.35

Correlation Coefficient

Western Metal  Suzhou Xingye

Weak diversification

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

Pair Corralation between Western Metal and Suzhou Xingye

Assuming the 90 days trading horizon Western Metal Materials is expected to generate 0.75 times more return on investment than Suzhou Xingye. However, Western Metal Materials is 1.33 times less risky than Suzhou Xingye. It trades about 0.04 of its potential returns per unit of risk. Suzhou Xingye Material is currently generating about -0.02 per unit of risk. If you would invest  1,445  in Western Metal Materials on October 9, 2024 and sell it today you would earn a total of  229.00  from holding Western Metal Materials or generate 15.85% return on investment over 90 days.

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

Western Metal Materials  vs.  Suzhou Xingye Material

Western Metal Materials

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

Suzhou Xingye Material

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Suzhou Xingye Material are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Suzhou Xingye is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Metal and Suzhou Xingye

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

The idea behind Western Metal Materials and Suzhou Xingye 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.