Correlation Between Xinke Material and Guangzhou Ruoyuchen

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

By analyzing existing cross correlation between Xinke Material and Guangzhou Ruoyuchen Information, you can compare the effects of market volatilities on Xinke Material and Guangzhou Ruoyuchen 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 Guangzhou Ruoyuchen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinke Material and Guangzhou Ruoyuchen.

Diversification Opportunities for Xinke Material and Guangzhou Ruoyuchen

0.86

Correlation Coefficient

Xinke Material  Guangzhou Ruoyuchen

Very poor diversification

The 3 months correlation between Xinke and Guangzhou is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Xinke Material and Guangzhou Ruoyuchen Informatio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Ruoyuchen 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 Guangzhou Ruoyuchen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Ruoyuchen has no effect on the direction of Xinke Material i.e., Xinke Material and Guangzhou Ruoyuchen go up and down completely randomly.

Pair Corralation between Xinke Material and Guangzhou Ruoyuchen

Assuming the 90 days trading horizon Xinke Material is expected to generate 1.22 times less return on investment than Guangzhou Ruoyuchen. But when comparing it to its historical volatility, Xinke Material is 1.16 times less risky than Guangzhou Ruoyuchen. It trades about 0.22 of its potential returns per unit of risk. Guangzhou Ruoyuchen Information is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,086  in Guangzhou Ruoyuchen Information on September 27, 2024 and sell it today you would earn a total of  1,803  from holding Guangzhou Ruoyuchen Information or generate 166.02% return on investment over 90 days.

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

Xinke Material  vs.  Guangzhou Ruoyuchen Informatio

Xinke Material

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xinke Material are ranked lower than 22 (%) 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.

Guangzhou Ruoyuchen

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Ruoyuchen Information are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Ruoyuchen sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xinke Material and Guangzhou Ruoyuchen

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

The idea behind Xinke Material and Guangzhou Ruoyuchen Information 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.