Correlation Between North Huajin and Xiamen CD

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

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

Diversification Opportunities for North Huajin and Xiamen CD

0.82

Correlation Coefficient

North Huajin  Xiamen CD

Very poor diversification

The 3 months correlation between North and Xiamen is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding North Huajin Chemical and Xiamen CD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen CD and North Huajin 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 North Huajin Chemical are associated (or correlated) with Xiamen CD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen CD has no effect on the direction of North Huajin i.e., North Huajin and Xiamen CD go up and down completely randomly.

Pair Corralation between North Huajin and Xiamen CD

Assuming the 90 days trading horizon North Huajin Chemical is expected to generate 1.16 times more return on investment than Xiamen CD. However, North Huajin is 1.16 times more volatile than Xiamen CD. It trades about 0.17 of its potential returns per unit of risk. Xiamen CD is currently generating about 0.16 per unit of risk. If you would invest  363.00  in North Huajin Chemical on September 14, 2024 and sell it today you would earn a total of  145.00  from holding North Huajin Chemical or generate 39.94% return on investment over 90 days.

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

North Huajin Chemical  vs.  Xiamen CD

North Huajin Chemical

Risk-Adjusted Performance

13 of 100

Solid

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

Xiamen CD

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen CD are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xiamen CD sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North Huajin and Xiamen CD

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

The idea behind North Huajin Chemical and Xiamen CD 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.