Correlation Between Wankai New and Tonghua Grape

Can any of the company-specific risk be diversified away by investing in both Wankai New and Tonghua Grape 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 Wankai New and Tonghua Grape into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wankai New Materials and Tonghua Grape Wine, you can compare the effects of market volatilities on Wankai New and Tonghua Grape 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 Wankai New with a short position of Tonghua Grape. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wankai New and Tonghua Grape.

Diversification Opportunities for Wankai New and Tonghua Grape

0.6

Correlation Coefficient

Wankai New  Tonghua Grape

Poor diversification

The 3 months correlation between Wankai and Tonghua is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Wankai New Materials and Tonghua Grape Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tonghua Grape Wine and Wankai New 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 Wankai New Materials are associated (or correlated) with Tonghua Grape. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tonghua Grape Wine has no effect on the direction of Wankai New i.e., Wankai New and Tonghua Grape go up and down completely randomly.

Pair Corralation between Wankai New and Tonghua Grape

Assuming the 90 days trading horizon Wankai New Materials is expected to under-perform the Tonghua Grape. But the stock apears to be less risky and, when comparing its historical volatility, Wankai New Materials is 1.88 times less risky than Tonghua Grape. The stock trades about -0.09 of its potential returns per unit of risk. The Tonghua Grape Wine is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  283.00  in Tonghua Grape Wine on September 24, 2024 and sell it today you would earn a total of  31.00  from holding Tonghua Grape Wine or generate 10.95% return on investment over 90 days.

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

Wankai New Materials  vs.  Tonghua Grape Wine

Wankai New Materials

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wankai New Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wankai New sustained solid returns over the last few months and may actually be approaching a breakup point.

Tonghua Grape Wine

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tonghua Grape Wine are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tonghua Grape sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wankai New and Tonghua Grape

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

The idea behind Wankai New Materials and Tonghua Grape Wine 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.