Correlation Between Zhejiang Xiantong and Anhui Gujing

Can any of the company-specific risk be diversified away by investing in both Zhejiang Xiantong and Anhui Gujing 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 Zhejiang Xiantong and Anhui Gujing into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhejiang Xiantong RubberPlastic and Anhui Gujing Distillery, you can compare the effects of market volatilities on Zhejiang Xiantong and Anhui Gujing 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 Zhejiang Xiantong with a short position of Anhui Gujing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Xiantong and Anhui Gujing.

Diversification Opportunities for Zhejiang Xiantong and Anhui Gujing

0.58

Correlation Coefficient

Zhejiang Xiantong  Anhui Gujing

Very weak diversification

The 3 months correlation between Zhejiang and Anhui is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Xiantong RubberPlasti and Anhui Gujing Distillery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Gujing Distillery and Zhejiang Xiantong 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 Zhejiang Xiantong RubberPlastic are associated (or correlated) with Anhui Gujing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Gujing Distillery has no effect on the direction of Zhejiang Xiantong i.e., Zhejiang Xiantong and Anhui Gujing go up and down completely randomly.

Pair Corralation between Zhejiang Xiantong and Anhui Gujing

Assuming the 90 days trading horizon Zhejiang Xiantong is expected to generate 1.09 times less return on investment than Anhui Gujing. But when comparing it to its historical volatility, Zhejiang Xiantong RubberPlastic is 1.37 times less risky than Anhui Gujing. It trades about 0.13 of its potential returns per unit of risk. Anhui Gujing Distillery is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  14,563  in Anhui Gujing Distillery on September 21, 2024 and sell it today you would earn a total of  3,087  from holding Anhui Gujing Distillery or generate 21.2% return on investment over 90 days.

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

Zhejiang Xiantong RubberPlasti  vs.  Anhui Gujing Distillery

Zhejiang Xiantong

Risk-Adjusted Performance

10 of 100

OK

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

Anhui Gujing Distillery

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Gujing Distillery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Gujing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhejiang Xiantong and Anhui Gujing

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

The idea behind Zhejiang Xiantong RubberPlastic and Anhui Gujing Distillery 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.