Correlation Between Xizi Clean and Chengdu Kanghua

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

By analyzing existing cross correlation between Xizi Clean Energy and Chengdu Kanghua Biological, you can compare the effects of market volatilities on Xizi Clean and Chengdu Kanghua 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 Xizi Clean with a short position of Chengdu Kanghua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xizi Clean and Chengdu Kanghua.

Diversification Opportunities for Xizi Clean and Chengdu Kanghua

0.84

Correlation Coefficient

Xizi Clean  Chengdu Kanghua

Very poor diversification

The 3 months correlation between Xizi and Chengdu is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Xizi Clean Energy and Chengdu Kanghua Biological in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Kanghua Biol and Xizi Clean 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 Xizi Clean Energy are associated (or correlated) with Chengdu Kanghua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Kanghua Biol has no effect on the direction of Xizi Clean i.e., Xizi Clean and Chengdu Kanghua go up and down completely randomly.

Pair Corralation between Xizi Clean and Chengdu Kanghua

Assuming the 90 days trading horizon Xizi Clean is expected to generate 1.15 times less return on investment than Chengdu Kanghua. But when comparing it to its historical volatility, Xizi Clean Energy is 1.64 times less risky than Chengdu Kanghua. It trades about 0.15 of its potential returns per unit of risk. Chengdu Kanghua Biological is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,632  in Chengdu Kanghua Biological on September 12, 2024 and sell it today you would earn a total of  1,178  from holding Chengdu Kanghua Biological or generate 25.43% return on investment over 90 days.

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

Xizi Clean Energy  vs.  Chengdu Kanghua Biological

Xizi Clean Energy

Risk-Adjusted Performance

11 of 100

Good

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

Chengdu Kanghua Biol

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Xizi Clean and Chengdu Kanghua

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

The idea behind Xizi Clean Energy and Chengdu Kanghua Biological 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.

Check out your portfolio center.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.