Correlation Between Tonghua Grape and Fujian Newland

Can any of the company-specific risk be diversified away by investing in both Tonghua Grape and Fujian Newland 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 Tonghua Grape and Fujian Newland into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tonghua Grape Wine and Fujian Newland Computer, you can compare the effects of market volatilities on Tonghua Grape and Fujian Newland 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 Tonghua Grape with a short position of Fujian Newland. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tonghua Grape and Fujian Newland.

Diversification Opportunities for Tonghua Grape and Fujian Newland

0.88

Correlation Coefficient

Tonghua Grape  Fujian Newland

Very poor diversification

The 3 months correlation between Tonghua and Fujian is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Tonghua Grape Wine and Fujian Newland Computer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fujian Newland Computer and Tonghua Grape 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 Tonghua Grape Wine are associated (or correlated) with Fujian Newland. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fujian Newland Computer has no effect on the direction of Tonghua Grape i.e., Tonghua Grape and Fujian Newland go up and down completely randomly.

Pair Corralation between Tonghua Grape and Fujian Newland

Assuming the 90 days trading horizon Tonghua Grape is expected to generate 5.64 times less return on investment than Fujian Newland. But when comparing it to its historical volatility, Tonghua Grape Wine is 1.49 times less risky than Fujian Newland. It trades about 0.07 of its potential returns per unit of risk. Fujian Newland Computer is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,228  in Fujian Newland Computer on September 3, 2024 and sell it today you would earn a total of  909.00  from holding Fujian Newland Computer or generate 74.02% return on investment over 90 days.

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

Tonghua Grape Wine  vs.  Fujian Newland Computer

Tonghua Grape Wine

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tonghua Grape Wine are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tonghua Grape may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fujian Newland Computer

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fujian Newland Computer are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fujian Newland sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tonghua Grape and Fujian Newland

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

The idea behind Tonghua Grape Wine and Fujian Newland Computer 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.