Correlation Between Zhongshan Broad and Xiamen Faratronic

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

By analyzing existing cross correlation between Zhongshan Broad Ocean Motor and Xiamen Faratronic Co, you can compare the effects of market volatilities on Zhongshan Broad and Xiamen Faratronic 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 Zhongshan Broad with a short position of Xiamen Faratronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongshan Broad and Xiamen Faratronic.

Diversification Opportunities for Zhongshan Broad and Xiamen Faratronic

0.56

Correlation Coefficient

Zhongshan Broad  Xiamen Faratronic

Very weak diversification

The 3 months correlation between Zhongshan and Xiamen is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Zhongshan Broad Ocean Motor and Xiamen Faratronic Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Faratronic and Zhongshan Broad 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 Zhongshan Broad Ocean Motor are associated (or correlated) with Xiamen Faratronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Faratronic has no effect on the direction of Zhongshan Broad i.e., Zhongshan Broad and Xiamen Faratronic go up and down completely randomly.

Pair Corralation between Zhongshan Broad and Xiamen Faratronic

Assuming the 90 days trading horizon Zhongshan Broad is expected to generate 1.65 times less return on investment than Xiamen Faratronic. But when comparing it to its historical volatility, Zhongshan Broad Ocean Motor is 1.29 times less risky than Xiamen Faratronic. It trades about 0.04 of its potential returns per unit of risk. Xiamen Faratronic Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  9,059  in Xiamen Faratronic Co on October 10, 2024 and sell it today you would earn a total of  2,941  from holding Xiamen Faratronic Co or generate 32.46% return on investment over 90 days.

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

Zhongshan Broad Ocean Motor  vs.  Xiamen Faratronic Co

Zhongshan Broad Ocean

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongshan Broad Ocean Motor are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Zhongshan Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Xiamen Faratronic

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen Faratronic Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xiamen Faratronic may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Zhongshan Broad and Xiamen Faratronic

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

The idea behind Zhongshan Broad Ocean Motor and Xiamen Faratronic Co 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..