Correlation Between Xiaomi Corp and COVANTA

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

By analyzing existing cross correlation between Xiaomi Corp and COVANTA HLDG P, you can compare the effects of market volatilities on Xiaomi Corp and COVANTA 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 Xiaomi Corp with a short position of COVANTA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiaomi Corp and COVANTA.

Diversification Opportunities for Xiaomi Corp and COVANTA

-0.39

Correlation Coefficient

Xiaomi Corp  COVANTA

Very good diversification

The 3 months correlation between Xiaomi and COVANTA is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Xiaomi Corp and COVANTA HLDG P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COVANTA HLDG P and Xiaomi Corp 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 Xiaomi Corp are associated (or correlated) with COVANTA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COVANTA HLDG P has no effect on the direction of Xiaomi Corp i.e., Xiaomi Corp and COVANTA go up and down completely randomly.

Pair Corralation between Xiaomi Corp and COVANTA

Assuming the 90 days horizon Xiaomi Corp is expected to generate 4.13 times more return on investment than COVANTA. However, Xiaomi Corp is 4.13 times more volatile than COVANTA HLDG P. It trades about 0.29 of its potential returns per unit of risk. COVANTA HLDG P is currently generating about -0.38 per unit of risk. If you would invest  413.00  in Xiaomi Corp on October 10, 2024 and sell it today you would earn a total of  55.00  from holding Xiaomi Corp or generate 13.32% return on investment over 90 days.

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

Xiaomi Corp  vs.  COVANTA HLDG P

Xiaomi Corp

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Xiaomi Corp reported solid returns over the last few months and may actually be approaching a breakup point.

COVANTA HLDG P

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Xiaomi Corp and COVANTA

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

The idea behind Xiaomi Corp and COVANTA HLDG P 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 Commodity Directory module to find actively traded commodities issued by global exchanges.