Correlation Between Zhejiang Yayi and China Securities

Can any of the company-specific risk be diversified away by investing in both Zhejiang Yayi and China Securities 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 Zhejiang Yayi and China Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhejiang Yayi Metal and China Securities 800, you can compare the effects of market volatilities on Zhejiang Yayi and China Securities 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 Zhejiang Yayi with a short position of China Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Yayi and China Securities.

Diversification Opportunities for Zhejiang Yayi and China Securities

0.93

Correlation Coefficient

Zhejiang Yayi  China Securities

Almost no diversification

The 3 months correlation between Zhejiang and China is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Yayi Metal and China Securities 800 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Securities 800 and Zhejiang Yayi 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 Zhejiang Yayi Metal are associated (or correlated) with China Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Securities 800 has no effect on the direction of Zhejiang Yayi i.e., Zhejiang Yayi and China Securities go up and down completely randomly.

Pair Corralation between Zhejiang Yayi and China Securities

Assuming the 90 days trading horizon Zhejiang Yayi Metal is expected to generate 1.66 times more return on investment than China Securities. However, Zhejiang Yayi is 1.66 times more volatile than China Securities 800. It trades about 0.24 of its potential returns per unit of risk. China Securities 800 is currently generating about 0.18 per unit of risk. If you would invest  1,821  in Zhejiang Yayi Metal on September 15, 2024 and sell it today you would earn a total of  1,146  from holding Zhejiang Yayi Metal or generate 62.93% return on investment over 90 days.

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

Zhejiang Yayi Metal  vs.  China Securities 800

Pair Trading with Zhejiang Yayi and China Securities

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

The idea behind Zhejiang Yayi Metal and China Securities 800 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.