Correlation Between Yindu Kitchen and Hubei Xingfa

Can any of the company-specific risk be diversified away by investing in both Yindu Kitchen and Hubei Xingfa 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 Yindu Kitchen and Hubei Xingfa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Yindu Kitchen Equipment and Hubei Xingfa Chemicals, you can compare the effects of market volatilities on Yindu Kitchen and Hubei Xingfa 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 Yindu Kitchen with a short position of Hubei Xingfa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yindu Kitchen and Hubei Xingfa.

Diversification Opportunities for Yindu Kitchen and Hubei Xingfa

0.01

Correlation Coefficient

Yindu Kitchen  Hubei Xingfa

Significant diversification

The 3 months correlation between Yindu and Hubei is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Yindu Kitchen Equipment and Hubei Xingfa Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Xingfa Chemicals and Yindu Kitchen 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 Yindu Kitchen Equipment are associated (or correlated) with Hubei Xingfa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Xingfa Chemicals has no effect on the direction of Yindu Kitchen i.e., Yindu Kitchen and Hubei Xingfa go up and down completely randomly.

Pair Corralation between Yindu Kitchen and Hubei Xingfa

Assuming the 90 days trading horizon Yindu Kitchen Equipment is expected to generate 1.37 times more return on investment than Hubei Xingfa. However, Yindu Kitchen is 1.37 times more volatile than Hubei Xingfa Chemicals. It trades about 0.09 of its potential returns per unit of risk. Hubei Xingfa Chemicals is currently generating about 0.02 per unit of risk. If you would invest  2,435  in Yindu Kitchen Equipment on December 24, 2024 and sell it today you would earn a total of  250.00  from holding Yindu Kitchen Equipment or generate 10.27% return on investment over 90 days.

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

Yindu Kitchen Equipment  vs.  Hubei Xingfa Chemicals

Yindu Kitchen Equipment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yindu Kitchen Equipment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yindu Kitchen may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Hubei Xingfa Chemicals

Risk-Adjusted Performance

Weak

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

Pair Trading with Yindu Kitchen and Hubei Xingfa

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

The idea behind Yindu Kitchen Equipment and Hubei Xingfa Chemicals 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.