Correlation Between Ningbo Fangzheng and Guangdong Xiongsu

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

By analyzing existing cross correlation between Ningbo Fangzheng Automobile and Guangdong Xiongsu Technology, you can compare the effects of market volatilities on Ningbo Fangzheng and Guangdong Xiongsu 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 Ningbo Fangzheng with a short position of Guangdong Xiongsu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ningbo Fangzheng and Guangdong Xiongsu.

Diversification Opportunities for Ningbo Fangzheng and Guangdong Xiongsu

0.32

Correlation Coefficient

Ningbo Fangzheng  Guangdong Xiongsu

Weak diversification

The 3 months correlation between Ningbo and Guangdong is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Fangzheng Automobile and Guangdong Xiongsu Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Xiongsu and Ningbo Fangzheng 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 Ningbo Fangzheng Automobile are associated (or correlated) with Guangdong Xiongsu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Xiongsu has no effect on the direction of Ningbo Fangzheng i.e., Ningbo Fangzheng and Guangdong Xiongsu go up and down completely randomly.

Pair Corralation between Ningbo Fangzheng and Guangdong Xiongsu

Assuming the 90 days trading horizon Ningbo Fangzheng is expected to generate 10.06 times less return on investment than Guangdong Xiongsu. But when comparing it to its historical volatility, Ningbo Fangzheng Automobile is 1.52 times less risky than Guangdong Xiongsu. It trades about 0.01 of its potential returns per unit of risk. Guangdong Xiongsu Technology is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  595.00  in Guangdong Xiongsu Technology on October 11, 2024 and sell it today you would earn a total of  85.00  from holding Guangdong Xiongsu Technology or generate 14.29% return on investment over 90 days.

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

Ningbo Fangzheng Automobile  vs.  Guangdong Xiongsu Technology

Ningbo Fangzheng Aut

Risk-Adjusted Performance

0 of 100

Very Weak

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

Guangdong Xiongsu

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Xiongsu Technology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Xiongsu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ningbo Fangzheng and Guangdong Xiongsu

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

The idea behind Ningbo Fangzheng Automobile and Guangdong Xiongsu Technology 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.