Correlation Between Xilinmen Furniture and Hengli Industrial

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

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

Diversification Opportunities for Xilinmen Furniture and Hengli Industrial

0.25

Correlation Coefficient

Xilinmen Furniture  Hengli Industrial

Modest diversification

The 3 months correlation between Xilinmen and Hengli is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Xilinmen Furniture Co and Hengli Industrial Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengli Industrial and Xilinmen Furniture 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 Xilinmen Furniture Co are associated (or correlated) with Hengli Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengli Industrial has no effect on the direction of Xilinmen Furniture i.e., Xilinmen Furniture and Hengli Industrial go up and down completely randomly.

Pair Corralation between Xilinmen Furniture and Hengli Industrial

Assuming the 90 days trading horizon Xilinmen Furniture Co is expected to generate 0.75 times more return on investment than Hengli Industrial. However, Xilinmen Furniture Co is 1.34 times less risky than Hengli Industrial. It trades about -0.03 of its potential returns per unit of risk. Hengli Industrial Development is currently generating about -0.03 per unit of risk. If you would invest  3,075  in Xilinmen Furniture Co on September 26, 2024 and sell it today you would lose (1,321) from holding Xilinmen Furniture Co or give up 42.96% of portfolio value over 90 days.

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

Xilinmen Furniture Co  vs.  Hengli Industrial Development

Xilinmen Furniture

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xilinmen Furniture Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xilinmen Furniture may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hengli Industrial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hengli Industrial Development are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengli Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xilinmen Furniture and Hengli Industrial

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

The idea behind Xilinmen Furniture Co and Hengli Industrial Development 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.