Correlation Between Qumei Furniture and Jiujiang Shanshui

Can any of the company-specific risk be diversified away by investing in both Qumei Furniture and Jiujiang Shanshui 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 Jiujiang Shanshui 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 Jiujiang Shanshui Technology, you can compare the effects of market volatilities on Qumei Furniture and Jiujiang Shanshui 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 Jiujiang Shanshui. Check out your portfolio center. Please also check ongoing floating volatility patterns of Qumei Furniture and Jiujiang Shanshui.

Diversification Opportunities for Qumei Furniture and Jiujiang Shanshui

0.89

Correlation Coefficient

Qumei Furniture  Jiujiang Shanshui

Very poor diversification

The 3 months correlation between Qumei and Jiujiang is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Qumei Furniture Group and Jiujiang Shanshui Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiujiang Shanshui 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 Jiujiang Shanshui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiujiang Shanshui has no effect on the direction of Qumei Furniture i.e., Qumei Furniture and Jiujiang Shanshui go up and down completely randomly.

Pair Corralation between Qumei Furniture and Jiujiang Shanshui

Assuming the 90 days trading horizon Qumei Furniture Group is expected to generate 2.74 times more return on investment than Jiujiang Shanshui. However, Qumei Furniture is 2.74 times more volatile than Jiujiang Shanshui Technology. It trades about 0.0 of its potential returns per unit of risk. Jiujiang Shanshui Technology is currently generating about -0.07 per unit of risk. If you would invest  308.00  in Qumei Furniture Group on September 25, 2024 and sell it today you would lose (4.00) from holding Qumei Furniture Group or give up 1.3% of portfolio value over 90 days.

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

Qumei Furniture Group  vs.  Jiujiang Shanshui Technology

Qumei Furniture Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Qumei Furniture Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Qumei Furniture sustained solid returns over the last few months and may actually be approaching a breakup point.

Jiujiang Shanshui

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jiujiang Shanshui Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiujiang Shanshui sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Qumei Furniture and Jiujiang Shanshui

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

The idea behind Qumei Furniture Group and Jiujiang Shanshui Technology 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.