Correlation Between Qumei Furniture and Zhonghong Pulin

Can any of the company-specific risk be diversified away by investing in both Qumei Furniture and Zhonghong Pulin 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 Qumei Furniture and Zhonghong Pulin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Qumei Furniture Group and Zhonghong Pulin Medical, you can compare the effects of market volatilities on Qumei Furniture and Zhonghong Pulin 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 Qumei Furniture with a short position of Zhonghong Pulin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Qumei Furniture and Zhonghong Pulin.

Diversification Opportunities for Qumei Furniture and Zhonghong Pulin

0.78

Correlation Coefficient

Qumei Furniture  Zhonghong Pulin

Poor diversification

The 3 months correlation between Qumei and Zhonghong is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Qumei Furniture Group and Zhonghong Pulin Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhonghong Pulin Medical and Qumei 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 Qumei Furniture Group are associated (or correlated) with Zhonghong Pulin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhonghong Pulin Medical has no effect on the direction of Qumei Furniture i.e., Qumei Furniture and Zhonghong Pulin go up and down completely randomly.

Pair Corralation between Qumei Furniture and Zhonghong Pulin

Assuming the 90 days trading horizon Qumei Furniture is expected to generate 4.76 times less return on investment than Zhonghong Pulin. But when comparing it to its historical volatility, Qumei Furniture Group is 1.11 times less risky than Zhonghong Pulin. It trades about 0.02 of its potential returns per unit of risk. Zhonghong Pulin Medical is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  969.00  in Zhonghong Pulin Medical on October 1, 2024 and sell it today you would earn a total of  373.00  from holding Zhonghong Pulin Medical or generate 38.49% return on investment over 90 days.

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

Qumei Furniture Group  vs.  Zhonghong Pulin Medical

Qumei Furniture Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Zhonghong Pulin Medical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Qumei Furniture and Zhonghong Pulin

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

The idea behind Qumei Furniture Group and Zhonghong Pulin Medical 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.