Correlation Between Xiamen East and Focus Media

Can any of the company-specific risk be diversified away by investing in both Xiamen East and Focus Media 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 Xiamen East and Focus Media into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xiamen East Asia and Focus Media Information, you can compare the effects of market volatilities on Xiamen East and Focus Media 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 Xiamen East with a short position of Focus Media. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiamen East and Focus Media.

Diversification Opportunities for Xiamen East and Focus Media

0.75

Correlation Coefficient

Xiamen East  Focus Media

Poor diversification

The 3 months correlation between Xiamen and Focus is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Xiamen East Asia and Focus Media Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focus Media Information and Xiamen East 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 Xiamen East Asia are associated (or correlated) with Focus Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focus Media Information has no effect on the direction of Xiamen East i.e., Xiamen East and Focus Media go up and down completely randomly.

Pair Corralation between Xiamen East and Focus Media

Assuming the 90 days trading horizon Xiamen East Asia is expected to under-perform the Focus Media. In addition to that, Xiamen East is 1.52 times more volatile than Focus Media Information. It trades about -0.04 of its total potential returns per unit of risk. Focus Media Information is currently generating about -0.06 per unit of volatility. If you would invest  700.00  in Focus Media Information on October 21, 2024 and sell it today you would lose (43.00) from holding Focus Media Information or give up 6.14% of portfolio value over 90 days.

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

Xiamen East Asia  vs.  Focus Media Information

Xiamen East Asia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xiamen East Asia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Focus Media Information

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Xiamen East and Focus Media

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

The idea behind Xiamen East Asia and Focus Media Information 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.