Correlation Between Suzhou Xingye and Hefei Metalforming

Can any of the company-specific risk be diversified away by investing in both Suzhou Xingye and Hefei Metalforming 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 Suzhou Xingye and Hefei Metalforming into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Suzhou Xingye Material and Hefei Metalforming Mach, you can compare the effects of market volatilities on Suzhou Xingye and Hefei Metalforming 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 Suzhou Xingye with a short position of Hefei Metalforming. Check out your portfolio center. Please also check ongoing floating volatility patterns of Suzhou Xingye and Hefei Metalforming.

Diversification Opportunities for Suzhou Xingye and Hefei Metalforming

0.83

Correlation Coefficient

Suzhou Xingye  Hefei Metalforming

Very poor diversification

The 3 months correlation between Suzhou and Hefei is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Suzhou Xingye Material and Hefei Metalforming Mach in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hefei Metalforming Mach and Suzhou Xingye 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 Suzhou Xingye Material are associated (or correlated) with Hefei Metalforming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hefei Metalforming Mach has no effect on the direction of Suzhou Xingye i.e., Suzhou Xingye and Hefei Metalforming go up and down completely randomly.

Pair Corralation between Suzhou Xingye and Hefei Metalforming

Assuming the 90 days trading horizon Suzhou Xingye Material is expected to under-perform the Hefei Metalforming. But the stock apears to be less risky and, when comparing its historical volatility, Suzhou Xingye Material is 1.37 times less risky than Hefei Metalforming. The stock trades about -0.41 of its potential returns per unit of risk. The Hefei Metalforming Mach is currently generating about -0.27 of returns per unit of risk over similar time horizon. If you would invest  819.00  in Hefei Metalforming Mach on October 11, 2024 and sell it today you would lose (150.00) from holding Hefei Metalforming Mach or give up 18.32% of portfolio value over 90 days.

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

Suzhou Xingye Material  vs.  Hefei Metalforming Mach

Suzhou Xingye Material

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Suzhou Xingye Material are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Suzhou Xingye is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hefei Metalforming Mach

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hefei Metalforming Mach are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hefei Metalforming may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Suzhou Xingye and Hefei Metalforming

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

The idea behind Suzhou Xingye Material and Hefei Metalforming Mach 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.