Correlation Between Sunny Loan and Xiamen Bank

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

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

Diversification Opportunities for Sunny Loan and Xiamen Bank

0.78

Correlation Coefficient

Sunny Loan  Xiamen Bank

Poor diversification

The 3 months correlation between Sunny and Xiamen is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Sunny Loan Top and Xiamen Bank Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Bank and Sunny Loan 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 Sunny Loan Top are associated (or correlated) with Xiamen Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Bank has no effect on the direction of Sunny Loan i.e., Sunny Loan and Xiamen Bank go up and down completely randomly.

Pair Corralation between Sunny Loan and Xiamen Bank

Assuming the 90 days trading horizon Sunny Loan Top is expected to generate 1.31 times more return on investment than Xiamen Bank. However, Sunny Loan is 1.31 times more volatile than Xiamen Bank Co. It trades about 0.12 of its potential returns per unit of risk. Xiamen Bank Co is currently generating about 0.08 per unit of risk. If you would invest  1,038  in Sunny Loan Top on September 19, 2024 and sell it today you would earn a total of  67.00  from holding Sunny Loan Top or generate 6.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Sunny Loan Top  vs.  Xiamen Bank Co

Sunny Loan Top

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sunny Loan Top are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sunny Loan sustained solid returns over the last few months and may actually be approaching a breakup point.

Xiamen Bank

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Sunny Loan and Xiamen Bank

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

The idea behind Sunny Loan Top and Xiamen Bank 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.