Correlation Between Long Yuan and Xiamen Faratronic

Can any of the company-specific risk be diversified away by investing in both Long Yuan and Xiamen Faratronic 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 Long Yuan and Xiamen Faratronic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Long Yuan Construction and Xiamen Faratronic Co, you can compare the effects of market volatilities on Long Yuan and Xiamen Faratronic 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 Long Yuan with a short position of Xiamen Faratronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Yuan and Xiamen Faratronic.

Diversification Opportunities for Long Yuan and Xiamen Faratronic

0.75

Correlation Coefficient

Long Yuan  Xiamen Faratronic

Poor diversification

The 3 months correlation between Long and Xiamen is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Long Yuan Construction and Xiamen Faratronic Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Faratronic and Long Yuan 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 Long Yuan Construction are associated (or correlated) with Xiamen Faratronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Faratronic has no effect on the direction of Long Yuan i.e., Long Yuan and Xiamen Faratronic go up and down completely randomly.

Pair Corralation between Long Yuan and Xiamen Faratronic

Assuming the 90 days trading horizon Long Yuan Construction is expected to under-perform the Xiamen Faratronic. But the stock apears to be less risky and, when comparing its historical volatility, Long Yuan Construction is 1.0 times less risky than Xiamen Faratronic. The stock trades about -0.02 of its potential returns per unit of risk. The Xiamen Faratronic Co is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  17,233  in Xiamen Faratronic Co on October 10, 2024 and sell it today you would lose (5,233) from holding Xiamen Faratronic Co or give up 30.37% of portfolio value over 90 days.

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

Long Yuan Construction  vs.  Xiamen Faratronic Co

Long Yuan Construction

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Long Yuan Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Long Yuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Xiamen Faratronic

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Long Yuan and Xiamen Faratronic

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

The idea behind Long Yuan Construction and Xiamen Faratronic 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.