Correlation Between Guangdong Wens and Ningbo Fangzheng

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

Diversification Opportunities for Guangdong Wens and Ningbo Fangzheng

0.49

Correlation Coefficient

Guangdong Wens  Ningbo Fangzheng

Very weak diversification

The 3 months correlation between Guangdong and Ningbo is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Wens Foodstuff and Ningbo Fangzheng Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Fangzheng Aut 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 Ningbo Fangzheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Fangzheng Aut has no effect on the direction of Guangdong Wens i.e., Guangdong Wens and Ningbo Fangzheng go up and down completely randomly.

Pair Corralation between Guangdong Wens and Ningbo Fangzheng

Assuming the 90 days trading horizon Guangdong Wens Foodstuff is expected to under-perform the Ningbo Fangzheng. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Wens Foodstuff is 2.66 times less risky than Ningbo Fangzheng. The stock trades about -0.07 of its potential returns per unit of risk. The Ningbo Fangzheng Automobile is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,544  in Ningbo Fangzheng Automobile on September 26, 2024 and sell it today you would earn a total of  27.00  from holding Ningbo Fangzheng Automobile or generate 1.75% 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.  Ningbo Fangzheng Automobile

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 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.

Ningbo Fangzheng Aut

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Fangzheng Automobile are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Fangzheng sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Wens and Ningbo Fangzheng

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

The idea behind Guangdong Wens Foodstuff and Ningbo Fangzheng Automobile 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.