Correlation Between Zhejiang Yongjin and Chahua Modern

Can any of the company-specific risk be diversified away by investing in both Zhejiang Yongjin and Chahua Modern 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 Zhejiang Yongjin and Chahua Modern into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhejiang Yongjin Metal and Chahua Modern Housewares, you can compare the effects of market volatilities on Zhejiang Yongjin and Chahua Modern 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 Zhejiang Yongjin with a short position of Chahua Modern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Yongjin and Chahua Modern.

Diversification Opportunities for Zhejiang Yongjin and Chahua Modern

-0.34

Correlation Coefficient

Zhejiang Yongjin  Chahua Modern

Very good diversification

The 3 months correlation between Zhejiang and Chahua is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Yongjin Metal and Chahua Modern Housewares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chahua Modern Housewares and Zhejiang Yongjin 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 Zhejiang Yongjin Metal are associated (or correlated) with Chahua Modern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chahua Modern Housewares has no effect on the direction of Zhejiang Yongjin i.e., Zhejiang Yongjin and Chahua Modern go up and down completely randomly.

Pair Corralation between Zhejiang Yongjin and Chahua Modern

Assuming the 90 days trading horizon Zhejiang Yongjin Metal is expected to under-perform the Chahua Modern. But the stock apears to be less risky and, when comparing its historical volatility, Zhejiang Yongjin Metal is 2.39 times less risky than Chahua Modern. The stock trades about -0.05 of its potential returns per unit of risk. The Chahua Modern Housewares is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,633  in Chahua Modern Housewares on October 10, 2024 and sell it today you would earn a total of  464.00  from holding Chahua Modern Housewares or generate 28.41% return on investment over 90 days.

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

Zhejiang Yongjin Metal  vs.  Chahua Modern Housewares

Zhejiang Yongjin Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Chahua Modern Housewares

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Zhejiang Yongjin and Chahua Modern

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

The idea behind Zhejiang Yongjin Metal and Chahua Modern Housewares 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.