Correlation Between Zhongshan Public and Xinke Material

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

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

Diversification Opportunities for Zhongshan Public and Xinke Material

0.9

Correlation Coefficient

Zhongshan Public  Xinke Material

Almost no diversification

The 3 months correlation between Zhongshan and Xinke is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Zhongshan Public Utilities and Xinke Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinke Material and Zhongshan Public 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 Zhongshan Public Utilities are associated (or correlated) with Xinke Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinke Material has no effect on the direction of Zhongshan Public i.e., Zhongshan Public and Xinke Material go up and down completely randomly.

Pair Corralation between Zhongshan Public and Xinke Material

Assuming the 90 days trading horizon Zhongshan Public is expected to generate 1.6 times less return on investment than Xinke Material. But when comparing it to its historical volatility, Zhongshan Public Utilities is 1.05 times less risky than Xinke Material. It trades about 0.15 of its potential returns per unit of risk. Xinke Material is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  173.00  in Xinke Material on September 4, 2024 and sell it today you would earn a total of  75.00  from holding Xinke Material or generate 43.35% return on investment over 90 days.

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

Zhongshan Public Utilities  vs.  Xinke Material

Zhongshan Public Uti

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongshan Public Utilities are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongshan Public sustained solid returns over the last few months and may actually be approaching a breakup point.

Xinke Material

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xinke Material are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinke Material sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhongshan Public and Xinke Material

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

The idea behind Zhongshan Public Utilities and Xinke Material 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.