Correlation Between Xinke Material and Qumei Furniture

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

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

Diversification Opportunities for Xinke Material and Qumei Furniture

0.44

Correlation Coefficient

Xinke Material  Qumei Furniture

Very weak diversification

The 3 months correlation between Xinke and Qumei is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Xinke Material and Qumei Furniture Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qumei Furniture Group 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 Qumei Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qumei Furniture Group has no effect on the direction of Xinke Material i.e., Xinke Material and Qumei Furniture go up and down completely randomly.

Pair Corralation between Xinke Material and Qumei Furniture

Assuming the 90 days trading horizon Xinke Material is expected to under-perform the Qumei Furniture. In addition to that, Xinke Material is 1.7 times more volatile than Qumei Furniture Group. It trades about -0.01 of its total potential returns per unit of risk. Qumei Furniture Group is currently generating about 0.04 per unit of volatility. If you would invest  279.00  in Qumei Furniture Group on December 29, 2024 and sell it today you would earn a total of  11.00  from holding Qumei Furniture Group or generate 3.94% 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.  Qumei Furniture Group

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 somewhat strong basic indicators, Xinke Material is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Qumei Furniture Group

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Qumei Furniture Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Qumei Furniture 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 Qumei Furniture

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

The idea behind Xinke Material and Qumei Furniture Group 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.