Correlation Between Xinke Material and Zhejiang Dahua

Can any of the company-specific risk be diversified away by investing in both Xinke Material and Zhejiang Dahua 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 Xinke Material and Zhejiang Dahua into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xinke Material and Zhejiang Dahua Technology, you can compare the effects of market volatilities on Xinke Material and Zhejiang Dahua 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 Xinke Material with a short position of Zhejiang Dahua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinke Material and Zhejiang Dahua.

Diversification Opportunities for Xinke Material and Zhejiang Dahua

0.42

Correlation Coefficient

Xinke Material  Zhejiang Dahua

Very weak diversification

The 3 months correlation between Xinke and Zhejiang is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Xinke Material and Zhejiang Dahua Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Dahua Technology and Xinke Material 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 Xinke Material are associated (or correlated) with Zhejiang Dahua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Dahua Technology has no effect on the direction of Xinke Material i.e., Xinke Material and Zhejiang Dahua go up and down completely randomly.

Pair Corralation between Xinke Material and Zhejiang Dahua

Assuming the 90 days trading horizon Xinke Material is expected to under-perform the Zhejiang Dahua. In addition to that, Xinke Material is 1.73 times more volatile than Zhejiang Dahua Technology. It trades about -0.03 of its total potential returns per unit of risk. Zhejiang Dahua Technology is currently generating about 0.02 per unit of volatility. If you would invest  1,702  in Zhejiang Dahua Technology on December 26, 2024 and sell it today you would earn a total of  17.00  from holding Zhejiang Dahua Technology or generate 1.0% return on investment over 90 days.

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

Xinke Material  vs.  Zhejiang Dahua Technology

Xinke Material

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xinke Material has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Zhejiang Dahua Technology

Risk-Adjusted Performance

Weak

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

Pair Trading with Xinke Material and Zhejiang Dahua

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

The idea behind Xinke Material and Zhejiang Dahua Technology 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.