Correlation Between Xinjiang Baodi and Dongjiang Environmental

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

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

Diversification Opportunities for Xinjiang Baodi and Dongjiang Environmental

0.76

Correlation Coefficient

Xinjiang Baodi  Dongjiang Environmental

Poor diversification

The 3 months correlation between Xinjiang and Dongjiang is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Xinjiang Baodi Mining and Dongjiang Environmental Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongjiang Environmental and Xinjiang Baodi 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 Baodi Mining are associated (or correlated) with Dongjiang Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongjiang Environmental has no effect on the direction of Xinjiang Baodi i.e., Xinjiang Baodi and Dongjiang Environmental go up and down completely randomly.

Pair Corralation between Xinjiang Baodi and Dongjiang Environmental

Assuming the 90 days trading horizon Xinjiang Baodi Mining is expected to generate 0.58 times more return on investment than Dongjiang Environmental. However, Xinjiang Baodi Mining is 1.73 times less risky than Dongjiang Environmental. It trades about 0.18 of its potential returns per unit of risk. Dongjiang Environmental Co is currently generating about -0.07 per unit of risk. If you would invest  663.00  in Xinjiang Baodi Mining on September 23, 2024 and sell it today you would earn a total of  32.00  from holding Xinjiang Baodi Mining or generate 4.83% return on investment over 90 days.

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

Xinjiang Baodi Mining  vs.  Dongjiang Environmental Co

Xinjiang Baodi Mining

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Baodi Mining are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Baodi sustained solid returns over the last few months and may actually be approaching a breakup point.

Dongjiang Environmental

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongjiang Environmental Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongjiang Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xinjiang Baodi and Dongjiang Environmental

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

The idea behind Xinjiang Baodi Mining and Dongjiang Environmental 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.