Correlation Between Western Securities and Sichuan Teway

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

By analyzing existing cross correlation between Western Securities Co and Sichuan Teway Food, you can compare the effects of market volatilities on Western Securities and Sichuan Teway 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 Western Securities with a short position of Sichuan Teway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Securities and Sichuan Teway.

Diversification Opportunities for Western Securities and Sichuan Teway

0.77

Correlation Coefficient

Western Securities  Sichuan Teway

Poor diversification

The 3 months correlation between Western and Sichuan is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Western Securities Co and Sichuan Teway Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Teway Food and Western Securities 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 Western Securities Co are associated (or correlated) with Sichuan Teway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Teway Food has no effect on the direction of Western Securities i.e., Western Securities and Sichuan Teway go up and down completely randomly.

Pair Corralation between Western Securities and Sichuan Teway

Assuming the 90 days trading horizon Western Securities Co is expected to under-perform the Sichuan Teway. But the stock apears to be less risky and, when comparing its historical volatility, Western Securities Co is 1.07 times less risky than Sichuan Teway. The stock trades about -0.27 of its potential returns per unit of risk. The Sichuan Teway Food is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  1,437  in Sichuan Teway Food on October 21, 2024 and sell it today you would lose (103.00) from holding Sichuan Teway Food or give up 7.17% of portfolio value over 90 days.

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

Western Securities Co  vs.  Sichuan Teway Food

Western Securities

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sichuan Teway Food

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Western Securities and Sichuan Teway

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

The idea behind Western Securities Co and Sichuan Teway 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 Stocks Directory module to find actively traded stocks across global markets.