Correlation Between Zhejiang Yayi and Hunan Mendale

Can any of the company-specific risk be diversified away by investing in both Zhejiang Yayi and Hunan Mendale 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 Hunan Mendale 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 Hunan Mendale Hometextile, you can compare the effects of market volatilities on Zhejiang Yayi and Hunan Mendale 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 Hunan Mendale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Yayi and Hunan Mendale.

Diversification Opportunities for Zhejiang Yayi and Hunan Mendale

0.85

Correlation Coefficient

Zhejiang Yayi  Hunan Mendale

Very poor diversification

The 3 months correlation between Zhejiang and Hunan is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Yayi Metal and Hunan Mendale Hometextile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunan Mendale Hometextile 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 Hunan Mendale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunan Mendale Hometextile has no effect on the direction of Zhejiang Yayi i.e., Zhejiang Yayi and Hunan Mendale go up and down completely randomly.

Pair Corralation between Zhejiang Yayi and Hunan Mendale

Assuming the 90 days trading horizon Zhejiang Yayi is expected to generate 2.68 times less return on investment than Hunan Mendale. In addition to that, Zhejiang Yayi is 1.01 times more volatile than Hunan Mendale Hometextile. It trades about 0.02 of its total potential returns per unit of risk. Hunan Mendale Hometextile is currently generating about 0.05 per unit of volatility. If you would invest  245.00  in Hunan Mendale Hometextile on September 28, 2024 and sell it today you would earn a total of  15.00  from holding Hunan Mendale Hometextile or generate 6.12% return on investment over 90 days.

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

Zhejiang Yayi Metal  vs.  Hunan Mendale Hometextile

Zhejiang Yayi Metal

Risk-Adjusted Performance

1 of 100

Insignificant

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

Hunan Mendale Hometextile

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Mendale Hometextile are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Mendale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Zhejiang Yayi and Hunan Mendale

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

The idea behind Zhejiang Yayi Metal and Hunan Mendale Hometextile 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.