Correlation Between Xiamen ITG and China Great

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

By analyzing existing cross correlation between Xiamen ITG Group and China Great Wall, you can compare the effects of market volatilities on Xiamen ITG and China Great 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 Xiamen ITG with a short position of China Great. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiamen ITG and China Great.

Diversification Opportunities for Xiamen ITG and China Great

0.75

Correlation Coefficient

Xiamen ITG  China Great

Poor diversification

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

Pair Corralation between Xiamen ITG and China Great

Assuming the 90 days trading horizon Xiamen ITG is expected to generate 5.15 times less return on investment than China Great. But when comparing it to its historical volatility, Xiamen ITG Group is 1.1 times less risky than China Great. It trades about 0.03 of its potential returns per unit of risk. China Great Wall is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  821.00  in China Great Wall on September 26, 2024 and sell it today you would earn a total of  31.00  from holding China Great Wall or generate 3.78% return on investment over 90 days.

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

Xiamen ITG Group  vs.  China Great Wall

Xiamen ITG Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xiamen ITG Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Xiamen ITG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Great Wall

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Great Wall are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Great sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xiamen ITG and China Great

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

The idea behind Xiamen ITG Group and China Great Wall 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.