Correlation Between Fujian Oriental and Ningbo Fangzheng

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

By analyzing existing cross correlation between Fujian Oriental Silver and Ningbo Fangzheng Automobile, you can compare the effects of market volatilities on Fujian Oriental and Ningbo Fangzheng 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 Fujian Oriental with a short position of Ningbo Fangzheng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fujian Oriental and Ningbo Fangzheng.

Diversification Opportunities for Fujian Oriental and Ningbo Fangzheng

0.28

Correlation Coefficient

Fujian Oriental  Ningbo Fangzheng

Modest diversification

The 3 months correlation between Fujian and Ningbo is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Fujian Oriental Silver and Ningbo Fangzheng Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Fangzheng Aut and Fujian Oriental 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 Fujian Oriental Silver are associated (or correlated) with Ningbo Fangzheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Fangzheng Aut has no effect on the direction of Fujian Oriental i.e., Fujian Oriental and Ningbo Fangzheng go up and down completely randomly.

Pair Corralation between Fujian Oriental and Ningbo Fangzheng

Assuming the 90 days trading horizon Fujian Oriental Silver is expected to under-perform the Ningbo Fangzheng. But the stock apears to be less risky and, when comparing its historical volatility, Fujian Oriental Silver is 1.05 times less risky than Ningbo Fangzheng. The stock trades about -0.49 of its potential returns per unit of risk. The Ningbo Fangzheng Automobile is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  1,720  in Ningbo Fangzheng Automobile on October 6, 2024 and sell it today you would lose (200.00) from holding Ningbo Fangzheng Automobile or give up 11.63% of portfolio value over 90 days.

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

Fujian Oriental Silver  vs.  Ningbo Fangzheng Automobile

Fujian Oriental Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fujian Oriental Silver has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Ningbo Fangzheng Aut

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ningbo Fangzheng Automobile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Fujian Oriental and Ningbo Fangzheng

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

The idea behind Fujian Oriental Silver and Ningbo Fangzheng Automobile 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.