Correlation Between New Hope and XCMG Construction

Can any of the company-specific risk be diversified away by investing in both New Hope and XCMG Construction 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 New Hope and XCMG Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between New Hope Dairy and XCMG Construction Machinery, you can compare the effects of market volatilities on New Hope and XCMG Construction 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 New Hope with a short position of XCMG Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Hope and XCMG Construction.

Diversification Opportunities for New Hope and XCMG Construction

-0.15

Correlation Coefficient

New Hope  XCMG Construction

Good diversification

The 3 months correlation between New and XCMG is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding New Hope Dairy and XCMG Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XCMG Construction and New Hope 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 New Hope Dairy are associated (or correlated) with XCMG Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XCMG Construction has no effect on the direction of New Hope i.e., New Hope and XCMG Construction go up and down completely randomly.

Pair Corralation between New Hope and XCMG Construction

Assuming the 90 days trading horizon New Hope is expected to generate 3.26 times less return on investment than XCMG Construction. In addition to that, New Hope is 1.79 times more volatile than XCMG Construction Machinery. It trades about 0.03 of its total potential returns per unit of risk. XCMG Construction Machinery is currently generating about 0.18 per unit of volatility. If you would invest  757.00  in XCMG Construction Machinery on December 22, 2024 and sell it today you would earn a total of  135.00  from holding XCMG Construction Machinery or generate 17.83% return on investment over 90 days.

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

New Hope Dairy  vs.  XCMG Construction Machinery

New Hope Dairy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New Hope Dairy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, New Hope is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

XCMG Construction

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in XCMG Construction Machinery are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, XCMG Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with New Hope and XCMG Construction

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

The idea behind New Hope Dairy and XCMG Construction Machinery 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.