Correlation Between Sichuan Fulin and Metro Investment

Can any of the company-specific risk be diversified away by investing in both Sichuan Fulin and Metro Investment 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 Metro Investment 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 Metro Investment Development, you can compare the effects of market volatilities on Sichuan Fulin and Metro Investment 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 Metro Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Fulin and Metro Investment.

Diversification Opportunities for Sichuan Fulin and Metro Investment

0.72

Correlation Coefficient

Sichuan Fulin  Metro Investment

Poor diversification

The 3 months correlation between Sichuan and Metro is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Fulin Transportation and Metro Investment Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Investment Dev 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 Metro Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Investment Dev has no effect on the direction of Sichuan Fulin i.e., Sichuan Fulin and Metro Investment go up and down completely randomly.

Pair Corralation between Sichuan Fulin and Metro Investment

Assuming the 90 days trading horizon Sichuan Fulin Transportation is expected to generate 0.8 times more return on investment than Metro Investment. However, Sichuan Fulin Transportation is 1.24 times less risky than Metro Investment. It trades about 0.26 of its potential returns per unit of risk. Metro Investment Development is currently generating about 0.14 per unit of risk. If you would invest  510.00  in Sichuan Fulin Transportation on September 12, 2024 and sell it today you would earn a total of  235.00  from holding Sichuan Fulin Transportation or generate 46.08% return on investment over 90 days.

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

Sichuan Fulin Transportation  vs.  Metro Investment Development

Sichuan Fulin Transp

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Fulin Transportation are ranked lower than 20 (%) 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.

Metro Investment Dev

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Sichuan Fulin and Metro Investment

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

The idea behind Sichuan Fulin Transportation and Metro Investment Development 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.