Correlation Between Xiamen Hexing and Shanghai Material

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

By analyzing existing cross correlation between Xiamen Hexing Packaging and Shanghai Material Trading, you can compare the effects of market volatilities on Xiamen Hexing and Shanghai 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 Xiamen Hexing with a short position of Shanghai Material. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiamen Hexing and Shanghai Material.

Diversification Opportunities for Xiamen Hexing and Shanghai Material

0.71

Correlation Coefficient

Xiamen Hexing  Shanghai Material

Poor diversification

The 3 months correlation between Xiamen and Shanghai is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Xiamen Hexing Packaging and Shanghai Material Trading in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Material Trading and Xiamen Hexing 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 Xiamen Hexing Packaging are associated (or correlated) with Shanghai Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Material Trading has no effect on the direction of Xiamen Hexing i.e., Xiamen Hexing and Shanghai Material go up and down completely randomly.

Pair Corralation between Xiamen Hexing and Shanghai Material

Assuming the 90 days trading horizon Xiamen Hexing Packaging is expected to under-perform the Shanghai Material. But the stock apears to be less risky and, when comparing its historical volatility, Xiamen Hexing Packaging is 1.91 times less risky than Shanghai Material. The stock trades about -0.26 of its potential returns per unit of risk. The Shanghai Material Trading is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  1,083  in Shanghai Material Trading on October 9, 2024 and sell it today you would lose (130.00) from holding Shanghai Material Trading or give up 12.0% of portfolio value over 90 days.

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

Xiamen Hexing Packaging  vs.  Shanghai Material Trading

Xiamen Hexing Packaging

Risk-Adjusted Performance

2 of 100

Weak

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

Shanghai Material Trading

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Material Trading are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Material sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xiamen Hexing and Shanghai Material

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

The idea behind Xiamen Hexing Packaging and Shanghai Material Trading 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..