Correlation Between Suzhou Weizhixiang and Shandong Hongchuang

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

By analyzing existing cross correlation between Suzhou Weizhixiang Food and Shandong Hongchuang Aluminum, you can compare the effects of market volatilities on Suzhou Weizhixiang and Shandong Hongchuang 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 Weizhixiang with a short position of Shandong Hongchuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Suzhou Weizhixiang and Shandong Hongchuang.

Diversification Opportunities for Suzhou Weizhixiang and Shandong Hongchuang

0.64

Correlation Coefficient

Suzhou Weizhixiang  Shandong Hongchuang

Poor diversification

The 3 months correlation between Suzhou and Shandong is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Suzhou Weizhixiang Food and Shandong Hongchuang Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hongchuang and Suzhou Weizhixiang 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 Weizhixiang Food are associated (or correlated) with Shandong Hongchuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hongchuang has no effect on the direction of Suzhou Weizhixiang i.e., Suzhou Weizhixiang and Shandong Hongchuang go up and down completely randomly.

Pair Corralation between Suzhou Weizhixiang and Shandong Hongchuang

Assuming the 90 days trading horizon Suzhou Weizhixiang is expected to generate 10.39 times less return on investment than Shandong Hongchuang. In addition to that, Suzhou Weizhixiang is 1.22 times more volatile than Shandong Hongchuang Aluminum. It trades about 0.02 of its total potential returns per unit of risk. Shandong Hongchuang Aluminum is currently generating about 0.21 per unit of volatility. If you would invest  603.00  in Shandong Hongchuang Aluminum on October 8, 2024 and sell it today you would earn a total of  294.00  from holding Shandong Hongchuang Aluminum or generate 48.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Suzhou Weizhixiang Food  vs.  Shandong Hongchuang Aluminum

Suzhou Weizhixiang Food

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Suzhou Weizhixiang Food are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Suzhou Weizhixiang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shandong Hongchuang

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Hongchuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Suzhou Weizhixiang and Shandong Hongchuang

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

The idea behind Suzhou Weizhixiang Food and Shandong Hongchuang Aluminum 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.