Correlation Between Tieling Newcity and Sichuan Teway

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

By analyzing existing cross correlation between Tieling Newcity Investment and Sichuan Teway Food, you can compare the effects of market volatilities on Tieling Newcity and Sichuan Teway 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 Tieling Newcity with a short position of Sichuan Teway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tieling Newcity and Sichuan Teway.

Diversification Opportunities for Tieling Newcity and Sichuan Teway

0.77

Correlation Coefficient

Tieling Newcity  Sichuan Teway

Poor diversification

The 3 months correlation between Tieling and Sichuan is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Tieling Newcity Investment and Sichuan Teway Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Teway Food and Tieling Newcity 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 Tieling Newcity Investment are associated (or correlated) with Sichuan Teway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Teway Food has no effect on the direction of Tieling Newcity i.e., Tieling Newcity and Sichuan Teway go up and down completely randomly.

Pair Corralation between Tieling Newcity and Sichuan Teway

Assuming the 90 days trading horizon Tieling Newcity is expected to generate 1.1 times less return on investment than Sichuan Teway. But when comparing it to its historical volatility, Tieling Newcity Investment is 1.5 times less risky than Sichuan Teway. It trades about 0.4 of its potential returns per unit of risk. Sichuan Teway Food is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  862.00  in Sichuan Teway Food on September 15, 2024 and sell it today you would earn a total of  632.00  from holding Sichuan Teway Food or generate 73.32% return on investment over 90 days.

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

Tieling Newcity Investment  vs.  Sichuan Teway Food

Tieling Newcity Inve

Risk-Adjusted Performance

31 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tieling Newcity Investment are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tieling Newcity sustained solid returns over the last few months and may actually be approaching a breakup point.

Sichuan Teway Food

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Teway Food are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Teway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tieling Newcity and Sichuan Teway

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

The idea behind Tieling Newcity Investment and Sichuan Teway Food 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.