Correlation Between Xinke Material and Zhejiang Construction

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

Diversification Opportunities for Xinke Material and Zhejiang Construction

-0.22

Correlation Coefficient

Xinke Material  Zhejiang Construction

Very good diversification

The 3 months correlation between Xinke and Zhejiang is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Xinke Material and Zhejiang Construction Investme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Construction 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 Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Construction has no effect on the direction of Xinke Material i.e., Xinke Material and Zhejiang Construction go up and down completely randomly.

Pair Corralation between Xinke Material and Zhejiang Construction

Assuming the 90 days trading horizon Xinke Material is expected to generate 1.02 times more return on investment than Zhejiang Construction. However, Xinke Material is 1.02 times more volatile than Zhejiang Construction Investment. It trades about 0.03 of its potential returns per unit of risk. Zhejiang Construction Investment is currently generating about -0.06 per unit of risk. If you would invest  275.00  in Xinke Material on October 13, 2024 and sell it today you would earn a total of  70.00  from holding Xinke Material or generate 25.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Xinke Material  vs.  Zhejiang Construction Investme

Xinke Material

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xinke Material are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinke Material sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhejiang Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhejiang Construction Investment 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.

Pair Trading with Xinke Material and Zhejiang Construction

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

The idea behind Xinke Material and Zhejiang Construction Investment 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.