Correlation Between Xingguang Agricultural and China Longyuan

Can any of the company-specific risk be diversified away by investing in both Xingguang Agricultural and China Longyuan 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 Xingguang Agricultural and China Longyuan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xingguang Agricultural Mach and China Longyuan Power, you can compare the effects of market volatilities on Xingguang Agricultural and China Longyuan 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 Xingguang Agricultural with a short position of China Longyuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xingguang Agricultural and China Longyuan.

Diversification Opportunities for Xingguang Agricultural and China Longyuan

0.79

Correlation Coefficient

Xingguang Agricultural  China Longyuan

Poor diversification

The 3 months correlation between Xingguang and China is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Xingguang Agricultural Mach and China Longyuan Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Longyuan Power and Xingguang Agricultural 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 Xingguang Agricultural Mach are associated (or correlated) with China Longyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Longyuan Power has no effect on the direction of Xingguang Agricultural i.e., Xingguang Agricultural and China Longyuan go up and down completely randomly.

Pair Corralation between Xingguang Agricultural and China Longyuan

Assuming the 90 days trading horizon Xingguang Agricultural Mach is expected to generate 1.06 times more return on investment than China Longyuan. However, Xingguang Agricultural is 1.06 times more volatile than China Longyuan Power. It trades about 0.28 of its potential returns per unit of risk. China Longyuan Power is currently generating about 0.13 per unit of risk. If you would invest  644.00  in Xingguang Agricultural Mach on September 16, 2024 and sell it today you would earn a total of  420.00  from holding Xingguang Agricultural Mach or generate 65.22% return on investment over 90 days.

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

Xingguang Agricultural Mach  vs.  China Longyuan Power

Xingguang Agricultural

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xingguang Agricultural Mach are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xingguang Agricultural sustained solid returns over the last few months and may actually be approaching a breakup point.

China Longyuan Power

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Xingguang Agricultural and China Longyuan

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

The idea behind Xingguang Agricultural Mach and China Longyuan Power 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.