Correlation Between Shanghai Ziyan and Xiwang Foodstuffs

Can any of the company-specific risk be diversified away by investing in both Shanghai Ziyan and Xiwang Foodstuffs 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 Shanghai Ziyan and Xiwang Foodstuffs into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shanghai Ziyan Foods and Xiwang Foodstuffs Co, you can compare the effects of market volatilities on Shanghai Ziyan and Xiwang Foodstuffs 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 Shanghai Ziyan with a short position of Xiwang Foodstuffs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Ziyan and Xiwang Foodstuffs.

Diversification Opportunities for Shanghai Ziyan and Xiwang Foodstuffs

0.44

Correlation Coefficient

Shanghai Ziyan  Xiwang Foodstuffs

Very weak diversification

The 3 months correlation between Shanghai and Xiwang is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Ziyan Foods and Xiwang Foodstuffs Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiwang Foodstuffs and Shanghai Ziyan 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 Shanghai Ziyan Foods are associated (or correlated) with Xiwang Foodstuffs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiwang Foodstuffs has no effect on the direction of Shanghai Ziyan i.e., Shanghai Ziyan and Xiwang Foodstuffs go up and down completely randomly.

Pair Corralation between Shanghai Ziyan and Xiwang Foodstuffs

Assuming the 90 days trading horizon Shanghai Ziyan Foods is expected to generate 1.4 times more return on investment than Xiwang Foodstuffs. However, Shanghai Ziyan is 1.4 times more volatile than Xiwang Foodstuffs Co. It trades about 0.01 of its potential returns per unit of risk. Xiwang Foodstuffs Co is currently generating about -0.37 per unit of risk. If you would invest  1,739  in Shanghai Ziyan Foods on October 9, 2024 and sell it today you would lose (32.00) from holding Shanghai Ziyan Foods or give up 1.84% of portfolio value over 90 days.

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

Shanghai Ziyan Foods  vs.  Xiwang Foodstuffs Co

Shanghai Ziyan Foods

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Ziyan Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shanghai Ziyan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Xiwang Foodstuffs

Risk-Adjusted Performance

6 of 100

Insignificant

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

Pair Trading with Shanghai Ziyan and Xiwang Foodstuffs

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

The idea behind Shanghai Ziyan Foods and Xiwang Foodstuffs 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.

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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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.