Correlation Between Nanxing Furniture and Chongqing Rural

Can any of the company-specific risk be diversified away by investing in both Nanxing Furniture and Chongqing Rural 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 Chongqing Rural 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 Chongqing Rural Commercial, you can compare the effects of market volatilities on Nanxing Furniture and Chongqing Rural 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 Chongqing Rural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nanxing Furniture and Chongqing Rural.

Diversification Opportunities for Nanxing Furniture and Chongqing Rural

0.16

Correlation Coefficient

Nanxing Furniture  Chongqing Rural

Average diversification

The 3 months correlation between Nanxing and Chongqing is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Nanxing Furniture Machinery and Chongqing Rural Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Rural Comm 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 Chongqing Rural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Rural Comm has no effect on the direction of Nanxing Furniture i.e., Nanxing Furniture and Chongqing Rural go up and down completely randomly.

Pair Corralation between Nanxing Furniture and Chongqing Rural

Assuming the 90 days trading horizon Nanxing Furniture is expected to generate 2.18 times less return on investment than Chongqing Rural. In addition to that, Nanxing Furniture is 1.91 times more volatile than Chongqing Rural Commercial. It trades about 0.02 of its total potential returns per unit of risk. Chongqing Rural Commercial is currently generating about 0.09 per unit of volatility. If you would invest  367.00  in Chongqing Rural Commercial on October 3, 2024 and sell it today you would earn a total of  240.00  from holding Chongqing Rural Commercial or generate 65.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.74%
Values	Daily Returns

Nanxing Furniture Machinery  vs.  Chongqing Rural Commercial

Nanxing Furniture

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nanxing Furniture Machinery are ranked lower than 3 (%) 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.

Chongqing Rural Comm

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Rural Commercial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chongqing Rural sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nanxing Furniture and Chongqing Rural

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

The idea behind Nanxing Furniture Machinery and Chongqing Rural Commercial 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.