Correlation Between X FAB and CGN Power

Can any of the company-specific risk be diversified away by investing in both X FAB and CGN Power 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 X FAB and CGN Power into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between X FAB Silicon Foundries and CGN Power Co, you can compare the effects of market volatilities on X FAB and CGN Power 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 X FAB with a short position of CGN Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of X FAB and CGN Power.

Diversification Opportunities for X FAB and CGN Power

-0.3

Correlation Coefficient

X FAB  CGN Power

Very good diversification

The 3 months correlation between XFB and CGN is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and CGN Power Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGN Power and X FAB 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 X FAB Silicon Foundries are associated (or correlated) with CGN Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGN Power has no effect on the direction of X FAB i.e., X FAB and CGN Power go up and down completely randomly.

Pair Corralation between X FAB and CGN Power

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to under-perform the CGN Power. But the stock apears to be less risky and, when comparing its historical volatility, X FAB Silicon Foundries is 4.82 times less risky than CGN Power. The stock trades about -0.02 of its potential returns per unit of risk. The CGN Power Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6.99  in CGN Power Co on October 4, 2024 and sell it today you would earn a total of  21.01  from holding CGN Power Co or generate 300.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

X FAB Silicon Foundries  vs.  CGN Power Co

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

CGN Power

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CGN Power Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, CGN Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with X FAB and CGN Power

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

The idea behind X FAB Silicon Foundries and CGN Power 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.

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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.