Correlation Between Xinke Material and Sichuan Teway

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

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

Diversification Opportunities for Xinke Material and Sichuan Teway

0.24

Correlation Coefficient

Xinke Material  Sichuan Teway

Modest diversification

The 3 months correlation between Xinke and Sichuan is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Xinke Material and Sichuan Teway Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Teway Food 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 Sichuan Teway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Teway Food has no effect on the direction of Xinke Material i.e., Xinke Material and Sichuan Teway go up and down completely randomly.

Pair Corralation between Xinke Material and Sichuan Teway

Assuming the 90 days trading horizon Xinke Material is expected to generate 1.89 times more return on investment than Sichuan Teway. However, Xinke Material is 1.89 times more volatile than Sichuan Teway Food. It trades about 0.18 of its potential returns per unit of risk. Sichuan Teway Food is currently generating about 0.02 per unit of risk. If you would invest  219.00  in Xinke Material on October 6, 2024 and sell it today you would earn a total of  140.00  from holding Xinke Material or generate 63.93% return on investment over 90 days.

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

Xinke Material  vs.  Sichuan Teway Food

Xinke Material

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xinke Material are ranked lower than 14 (%) 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.

Sichuan Teway Food

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Teway Food are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sichuan Teway 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 Sichuan Teway

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

The idea behind Xinke Material and Sichuan Teway Food 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.