Correlation Between Xilinmen Furniture and Shenzhen Hifuture

Can any of the company-specific risk be diversified away by investing in both Xilinmen Furniture and Shenzhen Hifuture 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 Shenzhen Hifuture 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 Shenzhen Hifuture Electric, you can compare the effects of market volatilities on Xilinmen Furniture and Shenzhen Hifuture 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 Shenzhen Hifuture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xilinmen Furniture and Shenzhen Hifuture.

Diversification Opportunities for Xilinmen Furniture and Shenzhen Hifuture

0.06

Correlation Coefficient

Xilinmen Furniture  Shenzhen Hifuture

Significant diversification

The 3 months correlation between Xilinmen and Shenzhen is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Xilinmen Furniture Co and Shenzhen Hifuture Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Hifuture 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 Shenzhen Hifuture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Hifuture has no effect on the direction of Xilinmen Furniture i.e., Xilinmen Furniture and Shenzhen Hifuture go up and down completely randomly.

Pair Corralation between Xilinmen Furniture and Shenzhen Hifuture

Assuming the 90 days trading horizon Xilinmen Furniture Co is expected to under-perform the Shenzhen Hifuture. But the stock apears to be less risky and, when comparing its historical volatility, Xilinmen Furniture Co is 1.11 times less risky than Shenzhen Hifuture. The stock trades about -0.03 of its potential returns per unit of risk. The Shenzhen Hifuture Electric is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  257.00  in Shenzhen Hifuture Electric on September 20, 2024 and sell it today you would earn a total of  73.00  from holding Shenzhen Hifuture Electric or generate 28.4% return on investment over 90 days.

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

Xilinmen Furniture Co  vs.  Shenzhen Hifuture Electric

Xilinmen Furniture

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xilinmen Furniture Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xilinmen Furniture sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Hifuture

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Xilinmen Furniture and Shenzhen Hifuture

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

The idea behind Xilinmen Furniture Co and Shenzhen Hifuture Electric 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.