Correlation Between Nanxing Furniture and Zhongrun Resources

Can any of the company-specific risk be diversified away by investing in both Nanxing Furniture and Zhongrun Resources 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 Nanxing Furniture and Zhongrun Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nanxing Furniture Machinery and Zhongrun Resources Investment, you can compare the effects of market volatilities on Nanxing Furniture and Zhongrun Resources 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 Nanxing Furniture with a short position of Zhongrun Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nanxing Furniture and Zhongrun Resources.

Diversification Opportunities for Nanxing Furniture and Zhongrun Resources

0.72

Correlation Coefficient

Nanxing Furniture  Zhongrun Resources

Poor diversification

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

Pair Corralation between Nanxing Furniture and Zhongrun Resources

Assuming the 90 days trading horizon Nanxing Furniture Machinery is expected to under-perform the Zhongrun Resources. In addition to that, Nanxing Furniture is 1.04 times more volatile than Zhongrun Resources Investment. It trades about -0.25 of its total potential returns per unit of risk. Zhongrun Resources Investment is currently generating about 0.02 per unit of volatility. If you would invest  360.00  in Zhongrun Resources Investment on September 21, 2024 and sell it today you would lose (1.00) from holding Zhongrun Resources Investment or give up 0.28% of portfolio value over 90 days.

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

Nanxing Furniture Machinery  vs.  Zhongrun Resources Investment

Nanxing Furniture

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nanxing Furniture Machinery are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanxing Furniture sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhongrun Resources

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongrun Resources Investment are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongrun Resources sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nanxing Furniture and Zhongrun Resources

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

The idea behind Nanxing Furniture Machinery and Zhongrun Resources Investment 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.