Correlation Between ZongTai Real and Allied Industrial

Can any of the company-specific risk be diversified away by investing in both ZongTai Real and Allied Industrial 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 ZongTai Real and Allied Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ZongTai Real Estate and Allied Industrial, you can compare the effects of market volatilities on ZongTai Real and Allied Industrial 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 ZongTai Real with a short position of Allied Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of ZongTai Real and Allied Industrial.

Diversification Opportunities for ZongTai Real and Allied Industrial

-0.32

Correlation Coefficient

ZongTai Real  Allied Industrial

Very good diversification

The 3 months correlation between ZongTai and Allied is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding ZongTai Real Estate and Allied Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Industrial and ZongTai Real 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 ZongTai Real Estate are associated (or correlated) with Allied Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Industrial has no effect on the direction of ZongTai Real i.e., ZongTai Real and Allied Industrial go up and down completely randomly.

Pair Corralation between ZongTai Real and Allied Industrial

Assuming the 90 days trading horizon ZongTai Real is expected to generate 1.08 times less return on investment than Allied Industrial. In addition to that, ZongTai Real is 1.37 times more volatile than Allied Industrial. It trades about 0.06 of its total potential returns per unit of risk. Allied Industrial is currently generating about 0.09 per unit of volatility. If you would invest  1,280  in Allied Industrial on October 6, 2024 and sell it today you would earn a total of  60.00  from holding Allied Industrial or generate 4.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.73%
Values	Daily Returns

ZongTai Real Estate  vs.  Allied Industrial

ZongTai Real Estate

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ZongTai Real Estate are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, ZongTai Real is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Allied Industrial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Industrial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Allied Industrial is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with ZongTai Real and Allied Industrial

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

The idea behind ZongTai Real Estate and Allied Industrial 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.