Correlation Between Xinjiang Beixin and Linzhou Heavy

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

By analyzing existing cross correlation between Xinjiang Beixin RoadBridge and Linzhou Heavy Machinery, you can compare the effects of market volatilities on Xinjiang Beixin and Linzhou Heavy 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 Xinjiang Beixin with a short position of Linzhou Heavy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinjiang Beixin and Linzhou Heavy.

Diversification Opportunities for Xinjiang Beixin and Linzhou Heavy

0.61

Correlation Coefficient

Xinjiang Beixin  Linzhou Heavy

Poor diversification

The 3 months correlation between Xinjiang and Linzhou is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Xinjiang Beixin RoadBridge and Linzhou Heavy Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linzhou Heavy Machinery and Xinjiang Beixin 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 Xinjiang Beixin RoadBridge are associated (or correlated) with Linzhou Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linzhou Heavy Machinery has no effect on the direction of Xinjiang Beixin i.e., Xinjiang Beixin and Linzhou Heavy go up and down completely randomly.

Pair Corralation between Xinjiang Beixin and Linzhou Heavy

Assuming the 90 days trading horizon Xinjiang Beixin RoadBridge is expected to under-perform the Linzhou Heavy. In addition to that, Xinjiang Beixin is 1.62 times more volatile than Linzhou Heavy Machinery. It trades about -0.19 of its total potential returns per unit of risk. Linzhou Heavy Machinery is currently generating about 0.01 per unit of volatility. If you would invest  394.00  in Linzhou Heavy Machinery on October 23, 2024 and sell it today you would earn a total of  0.00  from holding Linzhou Heavy Machinery or generate 0.0% return on investment over 90 days.

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

Xinjiang Beixin RoadBridge  vs.  Linzhou Heavy Machinery

Xinjiang Beixin Road

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Beixin RoadBridge are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Beixin may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Linzhou Heavy Machinery

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Linzhou Heavy Machinery are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Linzhou Heavy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Xinjiang Beixin and Linzhou Heavy

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

The idea behind Xinjiang Beixin RoadBridge and Linzhou Heavy Machinery 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.