Correlation Between Guangdong Wens and Xiamen Hexing

Can any of the company-specific risk be diversified away by investing in both Guangdong Wens and Xiamen Hexing 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 Xiamen Hexing 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 Xiamen Hexing Packaging, you can compare the effects of market volatilities on Guangdong Wens and Xiamen Hexing 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 Xiamen Hexing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Wens and Xiamen Hexing.

Diversification Opportunities for Guangdong Wens and Xiamen Hexing

-0.34

Correlation Coefficient

Guangdong Wens  Xiamen Hexing

Very good diversification

The 3 months correlation between Guangdong and Xiamen is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Wens Foodstuff and Xiamen Hexing Packaging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Hexing Packaging 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 Xiamen Hexing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Hexing Packaging has no effect on the direction of Guangdong Wens i.e., Guangdong Wens and Xiamen Hexing go up and down completely randomly.

Pair Corralation between Guangdong Wens and Xiamen Hexing

Assuming the 90 days trading horizon Guangdong Wens Foodstuff is expected to under-perform the Xiamen Hexing. In addition to that, Guangdong Wens is 1.0 times more volatile than Xiamen Hexing Packaging. It trades about -0.02 of its total potential returns per unit of risk. Xiamen Hexing Packaging is currently generating about 0.0 per unit of volatility. If you would invest  298.00  in Xiamen Hexing Packaging on October 8, 2024 and sell it today you would lose (14.00) from holding Xiamen Hexing Packaging or give up 4.7% of portfolio value over 90 days.

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

Guangdong Wens Foodstuff  vs.  Xiamen Hexing Packaging

Guangdong Wens Foodstuff

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Wens Foodstuff has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Xiamen Hexing Packaging

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Guangdong Wens and Xiamen Hexing

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

The idea behind Guangdong Wens Foodstuff and Xiamen Hexing Packaging 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.