Correlation Between Xilong Chemical and Shanghai Ziyan

Can any of the company-specific risk be diversified away by investing in both Xilong Chemical and Shanghai Ziyan 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 Xilong Chemical and Shanghai Ziyan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xilong Chemical Co and Shanghai Ziyan Foods, you can compare the effects of market volatilities on Xilong Chemical and Shanghai Ziyan 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 Xilong Chemical with a short position of Shanghai Ziyan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xilong Chemical and Shanghai Ziyan.

Diversification Opportunities for Xilong Chemical and Shanghai Ziyan

-0.32

Correlation Coefficient

Xilong Chemical  Shanghai Ziyan

Very good diversification

The 3 months correlation between Xilong and Shanghai is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Xilong Chemical Co and Shanghai Ziyan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Ziyan Foods and Xilong Chemical 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 Xilong Chemical Co are associated (or correlated) with Shanghai Ziyan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Ziyan Foods has no effect on the direction of Xilong Chemical i.e., Xilong Chemical and Shanghai Ziyan go up and down completely randomly.

Pair Corralation between Xilong Chemical and Shanghai Ziyan

Assuming the 90 days trading horizon Xilong Chemical is expected to generate 5.03 times less return on investment than Shanghai Ziyan. But when comparing it to its historical volatility, Xilong Chemical Co is 1.4 times less risky than Shanghai Ziyan. It trades about 0.01 of its potential returns per unit of risk. Shanghai Ziyan Foods is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,957  in Shanghai Ziyan Foods on December 26, 2024 and sell it today you would earn a total of  38.00  from holding Shanghai Ziyan Foods or generate 1.94% return on investment over 90 days.

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

Xilong Chemical Co  vs.  Shanghai Ziyan Foods

Xilong Chemical

Risk-Adjusted Performance

Very Weak

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

Shanghai Ziyan Foods

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Ziyan Foods are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai Ziyan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Xilong Chemical and Shanghai Ziyan

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

The idea behind Xilong Chemical Co and Shanghai Ziyan Foods 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.