Correlation Between Cheng Mei and Daxin Materials

Can any of the company-specific risk be diversified away by investing in both Cheng Mei and Daxin Materials 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 Cheng Mei and Daxin Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cheng Mei Materials and Daxin Materials Corp, you can compare the effects of market volatilities on Cheng Mei and Daxin Materials 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 Cheng Mei with a short position of Daxin Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheng Mei and Daxin Materials.

Diversification Opportunities for Cheng Mei and Daxin Materials

0.19

Correlation Coefficient

Cheng Mei  Daxin Materials

Average diversification

The 3 months correlation between Cheng and Daxin is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Mei Materials and Daxin Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daxin Materials Corp and Cheng Mei 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 Cheng Mei Materials are associated (or correlated) with Daxin Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daxin Materials Corp has no effect on the direction of Cheng Mei i.e., Cheng Mei and Daxin Materials go up and down completely randomly.

Pair Corralation between Cheng Mei and Daxin Materials

Assuming the 90 days trading horizon Cheng Mei Materials is expected to generate 0.41 times more return on investment than Daxin Materials. However, Cheng Mei Materials is 2.46 times less risky than Daxin Materials. It trades about -0.03 of its potential returns per unit of risk. Daxin Materials Corp is currently generating about -0.01 per unit of risk. If you would invest  1,350  in Cheng Mei Materials on December 29, 2024 and sell it today you would lose (35.00) from holding Cheng Mei Materials or give up 2.59% of portfolio value over 90 days.

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

Cheng Mei Materials  vs.  Daxin Materials Corp

Cheng Mei Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cheng Mei Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Cheng Mei is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Daxin Materials Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Daxin Materials Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Daxin Materials is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Cheng Mei and Daxin Materials

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

The idea behind Cheng Mei Materials and Daxin Materials Corp 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.