Correlation Between Nanxing Furniture and Ningbo Boway

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

Diversification Opportunities for Nanxing Furniture and Ningbo Boway

0.7

Correlation Coefficient

Nanxing Furniture  Ningbo Boway

Poor diversification

The 3 months correlation between Nanxing and Ningbo is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Nanxing Furniture Machinery and Ningbo Boway Alloy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Boway Alloy 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 Ningbo Boway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Boway Alloy has no effect on the direction of Nanxing Furniture i.e., Nanxing Furniture and Ningbo Boway go up and down completely randomly.

Pair Corralation between Nanxing Furniture and Ningbo Boway

Assuming the 90 days trading horizon Nanxing Furniture Machinery is expected to generate 1.61 times more return on investment than Ningbo Boway. However, Nanxing Furniture is 1.61 times more volatile than Ningbo Boway Alloy. It trades about 0.13 of its potential returns per unit of risk. Ningbo Boway Alloy is currently generating about 0.08 per unit of risk. If you would invest  1,500  in Nanxing Furniture Machinery on December 25, 2024 and sell it today you would earn a total of  528.00  from holding Nanxing Furniture Machinery or generate 35.2% return on investment over 90 days.

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

Nanxing Furniture Machinery  vs.  Ningbo Boway Alloy

Nanxing Furniture

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nanxing Furniture Machinery are ranked lower than 10 (%) 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.

Ningbo Boway Alloy

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Boway Alloy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Boway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nanxing Furniture and Ningbo Boway

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

The idea behind Nanxing Furniture Machinery and Ningbo Boway Alloy 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.