Correlation Between Xilinmen Furniture and Tongxing Environmental

Can any of the company-specific risk be diversified away by investing in both Xilinmen Furniture and Tongxing 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 Xilinmen Furniture and Tongxing Environmental 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 Tongxing Environmental Protection, you can compare the effects of market volatilities on Xilinmen Furniture and Tongxing 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 Xilinmen Furniture with a short position of Tongxing Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xilinmen Furniture and Tongxing Environmental.

Diversification Opportunities for Xilinmen Furniture and Tongxing Environmental

0.85

Correlation Coefficient

Xilinmen Furniture  Tongxing Environmental

Very poor diversification

The 3 months correlation between Xilinmen and Tongxing is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Xilinmen Furniture Co and Tongxing Environmental Protect in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tongxing Environmental 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 Tongxing Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tongxing Environmental has no effect on the direction of Xilinmen Furniture i.e., Xilinmen Furniture and Tongxing Environmental go up and down completely randomly.

Pair Corralation between Xilinmen Furniture and Tongxing Environmental

Assuming the 90 days trading horizon Xilinmen Furniture Co is expected to under-perform the Tongxing Environmental. But the stock apears to be less risky and, when comparing its historical volatility, Xilinmen Furniture Co is 1.45 times less risky than Tongxing Environmental. The stock trades about -0.11 of its potential returns per unit of risk. The Tongxing Environmental Protection is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,624  in Tongxing Environmental Protection on December 1, 2024 and sell it today you would lose (109.00) from holding Tongxing Environmental Protection or give up 6.71% of portfolio value over 90 days.

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

Xilinmen Furniture Co  vs.  Tongxing Environmental Protect

Xilinmen Furniture

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xilinmen Furniture Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Tongxing Environmental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tongxing Environmental Protection has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tongxing Environmental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Xilinmen Furniture and Tongxing Environmental

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

The idea behind Xilinmen Furniture Co and Tongxing Environmental Protection 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.