Correlation Between Zhejiang Yayi and Zhongyin Babi

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

Diversification Opportunities for Zhejiang Yayi and Zhongyin Babi

0.85
  Correlation Coefficient

Very poor diversification

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

Pair Corralation between Zhejiang Yayi and Zhongyin Babi

Assuming the 90 days trading horizon Zhejiang Yayi Metal is expected to generate 1.52 times more return on investment than Zhongyin Babi. However, Zhejiang Yayi is 1.52 times more volatile than Zhongyin Babi Food. It trades about 0.01 of its potential returns per unit of risk. Zhongyin Babi Food is currently generating about -0.04 per unit of risk. If you would invest  2,823  in Zhejiang Yayi Metal on September 27, 2024 and sell it today you would lose (495.00) from holding Zhejiang Yayi Metal or give up 17.53% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Zhejiang Yayi Metal  vs.  Zhongyin Babi Food

 Performance 
       Timeline  
Zhejiang Yayi Metal 

Risk-Adjusted Performance

4 of 100

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

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Zhongyin Babi Food are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongyin Babi sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhejiang Yayi and Zhongyin Babi Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Zhejiang Yayi and Zhongyin Babi

The main advantage of trading using opposite Zhejiang Yayi and Zhongyin Babi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zhejiang Yayi position performs unexpectedly, Zhongyin Babi 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 Zhongyin Babi will offset losses from the drop in Zhongyin Babi's long position.
The idea behind Zhejiang Yayi Metal and Zhongyin Babi Food 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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