Correlation Between Sichuan Fulin and Gifore Agricultural

Can any of the company-specific risk be diversified away by investing in both Sichuan Fulin and Gifore Agricultural 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 Sichuan Fulin and Gifore Agricultural into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sichuan Fulin Transportation and Gifore Agricultural Machinery, you can compare the effects of market volatilities on Sichuan Fulin and Gifore Agricultural 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 Sichuan Fulin with a short position of Gifore Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Fulin and Gifore Agricultural.

Diversification Opportunities for Sichuan Fulin and Gifore Agricultural

0.83

Correlation Coefficient

Sichuan Fulin  Gifore Agricultural

Very poor diversification

The 3 months correlation between Sichuan and Gifore is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Fulin Transportation and Gifore Agricultural Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gifore Agricultural and Sichuan Fulin 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 Sichuan Fulin Transportation are associated (or correlated) with Gifore Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gifore Agricultural has no effect on the direction of Sichuan Fulin i.e., Sichuan Fulin and Gifore Agricultural go up and down completely randomly.

Pair Corralation between Sichuan Fulin and Gifore Agricultural

Assuming the 90 days trading horizon Sichuan Fulin Transportation is expected to generate 0.74 times more return on investment than Gifore Agricultural. However, Sichuan Fulin Transportation is 1.35 times less risky than Gifore Agricultural. It trades about 0.13 of its potential returns per unit of risk. Gifore Agricultural Machinery is currently generating about 0.07 per unit of risk. If you would invest  603.00  in Sichuan Fulin Transportation on October 24, 2024 and sell it today you would earn a total of  126.00  from holding Sichuan Fulin Transportation or generate 20.9% return on investment over 90 days.

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

Sichuan Fulin Transportation  vs.  Gifore Agricultural Machinery

Sichuan Fulin Transp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Fulin Transportation are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Fulin sustained solid returns over the last few months and may actually be approaching a breakup point.

Gifore Agricultural

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gifore Agricultural Machinery are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gifore Agricultural sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sichuan Fulin and Gifore Agricultural

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

The idea behind Sichuan Fulin Transportation and Gifore Agricultural 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.