Correlation Between Yirendai and Cheetah Mobile

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

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

Diversification Opportunities for Yirendai and Cheetah Mobile

0.61

Correlation Coefficient

Yirendai  Cheetah Mobile

Poor diversification

The 3 months correlation between Yirendai and Cheetah is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Yirendai and Cheetah Mobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheetah Mobile and Yirendai 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 Yirendai are associated (or correlated) with Cheetah Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheetah Mobile has no effect on the direction of Yirendai i.e., Yirendai and Cheetah Mobile go up and down completely randomly.

Pair Corralation between Yirendai and Cheetah Mobile

Considering the 90-day investment horizon Yirendai is expected to generate 0.98 times more return on investment than Cheetah Mobile. However, Yirendai is 1.02 times less risky than Cheetah Mobile. It trades about 0.17 of its potential returns per unit of risk. Cheetah Mobile is currently generating about 0.0 per unit of risk. If you would invest  473.00  in Yirendai on December 29, 2024 and sell it today you would earn a total of  256.00  from holding Yirendai or generate 54.12% return on investment over 90 days.

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

Yirendai  vs.  Cheetah Mobile

Yirendai

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yirendai are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Yirendai exhibited solid returns over the last few months and may actually be approaching a breakup point.

Cheetah Mobile

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cheetah Mobile has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Cheetah Mobile is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Yirendai and Cheetah Mobile

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

The idea behind Yirendai and Cheetah Mobile 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.