Correlation Between Guangdong Wens and Xiamen Jihong

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

Diversification Opportunities for Guangdong Wens and Xiamen Jihong

0.52

Correlation Coefficient

Guangdong Wens  Xiamen Jihong

Very weak diversification

The 3 months correlation between Guangdong and Xiamen is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Wens Foodstuff and Xiamen Jihong Package in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Jihong Package 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 Jihong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Jihong Package has no effect on the direction of Guangdong Wens i.e., Guangdong Wens and Xiamen Jihong go up and down completely randomly.

Pair Corralation between Guangdong Wens and Xiamen Jihong

Assuming the 90 days trading horizon Guangdong Wens Foodstuff is expected to generate 0.49 times more return on investment than Xiamen Jihong. However, Guangdong Wens Foodstuff is 2.06 times less risky than Xiamen Jihong. It trades about 0.02 of its potential returns per unit of risk. Xiamen Jihong Package is currently generating about -0.04 per unit of risk. If you would invest  1,696  in Guangdong Wens Foodstuff on December 27, 2024 and sell it today you would earn a total of  14.00  from holding Guangdong Wens Foodstuff or generate 0.83% 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.  Xiamen Jihong Package

Guangdong Wens Foodstuff

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Wens Foodstuff are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangdong Wens is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Xiamen Jihong Package

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xiamen Jihong Package has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Xiamen Jihong 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 Jihong

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

The idea behind Guangdong Wens Foodstuff and Xiamen Jihong Package 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.