Correlation Between Guangdong Wens and Ningxia Younglight

Can any of the company-specific risk be diversified away by investing in both Guangdong Wens and Ningxia Younglight 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 Guangdong Wens and Ningxia Younglight into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangdong Wens Foodstuff and Ningxia Younglight Chemicals, you can compare the effects of market volatilities on Guangdong Wens and Ningxia Younglight 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 Guangdong Wens with a short position of Ningxia Younglight. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Wens and Ningxia Younglight.

Diversification Opportunities for Guangdong Wens and Ningxia Younglight

0.44

Correlation Coefficient

Guangdong Wens  Ningxia Younglight

Very weak diversification

The 3 months correlation between Guangdong and Ningxia is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Wens Foodstuff and Ningxia Younglight Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningxia Younglight and Guangdong Wens 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 Guangdong Wens Foodstuff are associated (or correlated) with Ningxia Younglight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningxia Younglight has no effect on the direction of Guangdong Wens i.e., Guangdong Wens and Ningxia Younglight go up and down completely randomly.

Pair Corralation between Guangdong Wens and Ningxia Younglight

Assuming the 90 days trading horizon Guangdong Wens Foodstuff is expected to under-perform the Ningxia Younglight. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Wens Foodstuff is 2.7 times less risky than Ningxia Younglight. The stock trades about -0.14 of its potential returns per unit of risk. The Ningxia Younglight Chemicals is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  681.00  in Ningxia Younglight Chemicals on September 20, 2024 and sell it today you would earn a total of  218.00  from holding Ningxia Younglight Chemicals or generate 32.01% return on investment over 90 days.

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

Guangdong Wens Foodstuff  vs.  Ningxia Younglight Chemicals

Guangdong Wens Foodstuff

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Wens Foodstuff are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Wens may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ningxia Younglight

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ningxia Younglight Chemicals are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningxia Younglight sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Wens and Ningxia Younglight

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

The idea behind Guangdong Wens Foodstuff and Ningxia Younglight Chemicals 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.