Correlation Between Xinjiang Tianrun and Xilong Chemical

Can any of the company-specific risk be diversified away by investing in both Xinjiang Tianrun and Xilong Chemical 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 Xinjiang Tianrun and Xilong Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xinjiang Tianrun Dairy and Xilong Chemical Co, you can compare the effects of market volatilities on Xinjiang Tianrun and Xilong Chemical 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 Xinjiang Tianrun with a short position of Xilong Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinjiang Tianrun and Xilong Chemical.

Diversification Opportunities for Xinjiang Tianrun and Xilong Chemical

0.93

Correlation Coefficient

Xinjiang Tianrun  Xilong Chemical

Almost no diversification

The 3 months correlation between Xinjiang and Xilong is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Xinjiang Tianrun Dairy and Xilong Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xilong Chemical and Xinjiang Tianrun 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 Xinjiang Tianrun Dairy are associated (or correlated) with Xilong Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xilong Chemical has no effect on the direction of Xinjiang Tianrun i.e., Xinjiang Tianrun and Xilong Chemical go up and down completely randomly.

Pair Corralation between Xinjiang Tianrun and Xilong Chemical

Assuming the 90 days trading horizon Xinjiang Tianrun is expected to generate 1.09 times less return on investment than Xilong Chemical. But when comparing it to its historical volatility, Xinjiang Tianrun Dairy is 1.28 times less risky than Xilong Chemical. It trades about 0.23 of its potential returns per unit of risk. Xilong Chemical Co is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  615.00  in Xilong Chemical Co on September 4, 2024 and sell it today you would earn a total of  274.00  from holding Xilong Chemical Co or generate 44.55% return on investment over 90 days.

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

Xinjiang Tianrun Dairy  vs.  Xilong Chemical Co

Xinjiang Tianrun Dairy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Tianrun Dairy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Tianrun sustained solid returns over the last few months and may actually be approaching a breakup point.

Xilong Chemical

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Xinjiang Tianrun and Xilong Chemical

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

The idea behind Xinjiang Tianrun Dairy and Xilong Chemical Co 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.