Correlation Between Suofeiya Home and Suzhou Weizhixiang

Can any of the company-specific risk be diversified away by investing in both Suofeiya Home and Suzhou Weizhixiang 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 Suofeiya Home and Suzhou Weizhixiang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Suofeiya Home Collection and Suzhou Weizhixiang Food, you can compare the effects of market volatilities on Suofeiya Home and Suzhou Weizhixiang 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 Suofeiya Home with a short position of Suzhou Weizhixiang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Suofeiya Home and Suzhou Weizhixiang.

Diversification Opportunities for Suofeiya Home and Suzhou Weizhixiang

0.63

Correlation Coefficient

Suofeiya Home  Suzhou Weizhixiang

Poor diversification

The 3 months correlation between Suofeiya and Suzhou is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Suofeiya Home Collection and Suzhou Weizhixiang Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzhou Weizhixiang Food and Suofeiya Home 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 Suofeiya Home Collection are associated (or correlated) with Suzhou Weizhixiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzhou Weizhixiang Food has no effect on the direction of Suofeiya Home i.e., Suofeiya Home and Suzhou Weizhixiang go up and down completely randomly.

Pair Corralation between Suofeiya Home and Suzhou Weizhixiang

Assuming the 90 days trading horizon Suofeiya Home Collection is expected to generate 0.92 times more return on investment than Suzhou Weizhixiang. However, Suofeiya Home Collection is 1.09 times less risky than Suzhou Weizhixiang. It trades about -0.03 of its potential returns per unit of risk. Suzhou Weizhixiang Food is currently generating about -0.02 per unit of risk. If you would invest  1,718  in Suofeiya Home Collection on December 31, 2024 and sell it today you would lose (73.00) from holding Suofeiya Home Collection or give up 4.25% of portfolio value over 90 days.

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

Suofeiya Home Collection  vs.  Suzhou Weizhixiang Food

Suofeiya Home Collection

Risk-Adjusted Performance

Very Weak

Over the last 90 days Suofeiya Home Collection has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Suofeiya Home is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Suzhou Weizhixiang Food

Risk-Adjusted Performance

Very Weak

Over the last 90 days Suzhou Weizhixiang Food has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Suzhou Weizhixiang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Suofeiya Home and Suzhou Weizhixiang

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

The idea behind Suofeiya Home Collection and Suzhou Weizhixiang Food 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.