Correlation Between Chengdu Xingrong and Xiandai Investment

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

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

Diversification Opportunities for Chengdu Xingrong and Xiandai Investment

0.5

Correlation Coefficient

Chengdu Xingrong  Xiandai Investment

Very weak diversification

The 3 months correlation between Chengdu and Xiandai is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Chengdu Xingrong Investment and Xiandai Investment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiandai Investment and Chengdu Xingrong 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 Chengdu Xingrong Investment are associated (or correlated) with Xiandai Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiandai Investment has no effect on the direction of Chengdu Xingrong i.e., Chengdu Xingrong and Xiandai Investment go up and down completely randomly.

Pair Corralation between Chengdu Xingrong and Xiandai Investment

Assuming the 90 days trading horizon Chengdu Xingrong Investment is expected to generate 0.62 times more return on investment than Xiandai Investment. However, Chengdu Xingrong Investment is 1.61 times less risky than Xiandai Investment. It trades about 0.22 of its potential returns per unit of risk. Xiandai Investment Co is currently generating about -0.11 per unit of risk. If you would invest  715.00  in Chengdu Xingrong Investment on September 26, 2024 and sell it today you would earn a total of  40.00  from holding Chengdu Xingrong Investment or generate 5.59% return on investment over 90 days.

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

Chengdu Xingrong Investment  vs.  Xiandai Investment Co

Chengdu Xingrong Inv

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Xingrong Investment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Xingrong sustained solid returns over the last few months and may actually be approaching a breakup point.

Xiandai Investment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xiandai Investment Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xiandai Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chengdu Xingrong and Xiandai Investment

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

The idea behind Chengdu Xingrong Investment and Xiandai Investment 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.