Correlation Between Gifore Agricultural and Chengdu Xingrong

Can any of the company-specific risk be diversified away by investing in both Gifore Agricultural and Chengdu Xingrong 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 Gifore Agricultural and Chengdu Xingrong into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Gifore Agricultural and Chengdu Xingrong

0.49

Correlation Coefficient

Gifore Agricultural  Chengdu Xingrong

Very weak diversification

The 3 months correlation between Gifore and Chengdu is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Gifore Agricultural Machinery and Chengdu Xingrong Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Xingrong Inv and Gifore Agricultural 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 Gifore Agricultural Machinery are associated (or correlated) with Chengdu Xingrong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Xingrong Inv has no effect on the direction of Gifore Agricultural i.e., Gifore Agricultural and Chengdu Xingrong go up and down completely randomly.

Pair Corralation between Gifore Agricultural and Chengdu Xingrong

Assuming the 90 days trading horizon Gifore Agricultural is expected to generate 1.19 times less return on investment than Chengdu Xingrong. In addition to that, Gifore Agricultural is 2.97 times more volatile than Chengdu Xingrong Investment. It trades about 0.08 of its total potential returns per unit of risk. Chengdu Xingrong Investment is currently generating about 0.29 per unit of volatility. If you would invest  710.00  in Chengdu Xingrong Investment on September 27, 2024 and sell it today you would earn a total of  53.00  from holding Chengdu Xingrong Investment or generate 7.46% return on investment over 90 days.

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

Gifore Agricultural Machinery  vs.  Chengdu Xingrong Investment

Gifore Agricultural

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gifore Agricultural Machinery are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gifore Agricultural sustained solid returns over the last few months and may actually be approaching a breakup point.

Chengdu Xingrong Inv

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Xingrong Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Xingrong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gifore Agricultural and Chengdu Xingrong

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

The idea behind Gifore Agricultural Machinery and Chengdu Xingrong 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.