Correlation Between Heilongjiang Transport and Nanxing Furniture

Can any of the company-specific risk be diversified away by investing in both Heilongjiang Transport and Nanxing Furniture 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 Heilongjiang Transport and Nanxing Furniture into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Heilongjiang Transport Development and Nanxing Furniture Machinery, you can compare the effects of market volatilities on Heilongjiang Transport and Nanxing Furniture 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 Heilongjiang Transport with a short position of Nanxing Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heilongjiang Transport and Nanxing Furniture.

Diversification Opportunities for Heilongjiang Transport and Nanxing Furniture

-0.28

Correlation Coefficient

Heilongjiang Transport  Nanxing Furniture

Very good diversification

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

Pair Corralation between Heilongjiang Transport and Nanxing Furniture

Assuming the 90 days trading horizon Heilongjiang Transport Development is expected to under-perform the Nanxing Furniture. But the stock apears to be less risky and, when comparing its historical volatility, Heilongjiang Transport Development is 4.06 times less risky than Nanxing Furniture. The stock trades about -0.12 of its potential returns per unit of risk. The Nanxing Furniture Machinery is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,558  in Nanxing Furniture Machinery on December 28, 2024 and sell it today you would earn a total of  483.00  from holding Nanxing Furniture Machinery or generate 31.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Heilongjiang Transport Develop  vs.  Nanxing Furniture Machinery

Heilongjiang Transport

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heilongjiang Transport Development 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.

Nanxing Furniture

Risk-Adjusted Performance

OK

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

Pair Trading with Heilongjiang Transport and Nanxing Furniture

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

The idea behind Heilongjiang Transport Development and Nanxing Furniture Machinery 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.