Correlation Between Nanxing Furniture and Road Environment

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

Diversification Opportunities for Nanxing Furniture and Road Environment

0.25

Correlation Coefficient

Nanxing Furniture  Road Environment

Modest diversification

The 3 months correlation between Nanxing and Road is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Nanxing Furniture Machinery and Road Environment Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Road Environment Tec 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 Road Environment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Road Environment Tec has no effect on the direction of Nanxing Furniture i.e., Nanxing Furniture and Road Environment go up and down completely randomly.

Pair Corralation between Nanxing Furniture and Road Environment

Assuming the 90 days trading horizon Nanxing Furniture Machinery is expected to generate 2.1 times more return on investment than Road Environment. However, Nanxing Furniture is 2.1 times more volatile than Road Environment Technology. It trades about 0.1 of its potential returns per unit of risk. Road Environment Technology is currently generating about -0.01 per unit of risk. If you would invest  1,568  in Nanxing Furniture Machinery on December 26, 2024 and sell it today you would earn a total of  394.00  from holding Nanxing Furniture Machinery or generate 25.13% return on investment over 90 days.

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

Nanxing Furniture Machinery  vs.  Road Environment Technology

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 8 (%) 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.

Road Environment Tec

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Nanxing Furniture and Road Environment

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

The idea behind Nanxing Furniture Machinery and Road Environment Technology 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.