Correlation Between Zhejiang Orient and Xilinmen Furniture

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

By analyzing existing cross correlation between Zhejiang Orient Gene and Xilinmen Furniture Co, you can compare the effects of market volatilities on Zhejiang Orient and Xilinmen Furniture 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 Orient with a short position of Xilinmen Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Orient and Xilinmen Furniture.

Diversification Opportunities for Zhejiang Orient and Xilinmen Furniture

0.74

Correlation Coefficient

Zhejiang Orient  Xilinmen Furniture

Poor diversification

The 3 months correlation between Zhejiang and Xilinmen is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Orient Gene and Xilinmen Furniture Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xilinmen Furniture and Zhejiang Orient 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 Orient Gene are associated (or correlated) with Xilinmen Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xilinmen Furniture has no effect on the direction of Zhejiang Orient i.e., Zhejiang Orient and Xilinmen Furniture go up and down completely randomly.

Pair Corralation between Zhejiang Orient and Xilinmen Furniture

Assuming the 90 days trading horizon Zhejiang Orient Gene is expected to generate 1.16 times more return on investment than Xilinmen Furniture. However, Zhejiang Orient is 1.16 times more volatile than Xilinmen Furniture Co. It trades about 0.06 of its potential returns per unit of risk. Xilinmen Furniture Co is currently generating about 0.01 per unit of risk. If you would invest  3,081  in Zhejiang Orient Gene on December 26, 2024 and sell it today you would earn a total of  212.00  from holding Zhejiang Orient Gene or generate 6.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Zhejiang Orient Gene  vs.  Xilinmen Furniture Co

Zhejiang Orient Gene

Risk-Adjusted Performance

Insignificant

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

Xilinmen Furniture

Risk-Adjusted Performance

Weak

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

Pair Trading with Zhejiang Orient and Xilinmen Furniture

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

The idea behind Zhejiang Orient Gene and Xilinmen Furniture Co 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.