Correlation Between Sichuan Fulin and Hefei Metalforming

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

By analyzing existing cross correlation between Sichuan Fulin Transportation and Hefei Metalforming Mach, you can compare the effects of market volatilities on Sichuan Fulin and Hefei Metalforming 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 Sichuan Fulin with a short position of Hefei Metalforming. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Fulin and Hefei Metalforming.

Diversification Opportunities for Sichuan Fulin and Hefei Metalforming

0.66

Correlation Coefficient

Sichuan Fulin  Hefei Metalforming

Poor diversification

The 3 months correlation between Sichuan and Hefei is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Fulin Transportation and Hefei Metalforming Mach in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hefei Metalforming Mach and Sichuan Fulin 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 Sichuan Fulin Transportation are associated (or correlated) with Hefei Metalforming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hefei Metalforming Mach has no effect on the direction of Sichuan Fulin i.e., Sichuan Fulin and Hefei Metalforming go up and down completely randomly.

Pair Corralation between Sichuan Fulin and Hefei Metalforming

Assuming the 90 days trading horizon Sichuan Fulin Transportation is expected to generate 1.05 times more return on investment than Hefei Metalforming. However, Sichuan Fulin is 1.05 times more volatile than Hefei Metalforming Mach. It trades about 0.1 of its potential returns per unit of risk. Hefei Metalforming Mach is currently generating about 0.07 per unit of risk. If you would invest  516.00  in Sichuan Fulin Transportation on September 29, 2024 and sell it today you would earn a total of  213.00  from holding Sichuan Fulin Transportation or generate 41.28% return on investment over 90 days.

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

Sichuan Fulin Transportation  vs.  Hefei Metalforming Mach

Sichuan Fulin Transp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Fulin Transportation are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Fulin sustained solid returns over the last few months and may actually be approaching a breakup point.

Hefei Metalforming Mach

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hefei Metalforming Mach are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hefei Metalforming may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sichuan Fulin and Hefei Metalforming

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

The idea behind Sichuan Fulin Transportation and Hefei Metalforming Mach 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.