Correlation Between Linzhou Heavy and Xinxiang Chemical

Can any of the company-specific risk be diversified away by investing in both Linzhou Heavy and Xinxiang Chemical 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 Linzhou Heavy and Xinxiang Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Linzhou Heavy Machinery and Xinxiang Chemical Fiber, you can compare the effects of market volatilities on Linzhou Heavy and Xinxiang Chemical 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 Linzhou Heavy with a short position of Xinxiang Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Linzhou Heavy and Xinxiang Chemical.

Diversification Opportunities for Linzhou Heavy and Xinxiang Chemical

0.74

Correlation Coefficient

Linzhou Heavy  Xinxiang Chemical

Poor diversification

The 3 months correlation between Linzhou and Xinxiang is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Linzhou Heavy Machinery and Xinxiang Chemical Fiber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinxiang Chemical Fiber and Linzhou Heavy 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 Linzhou Heavy Machinery are associated (or correlated) with Xinxiang Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinxiang Chemical Fiber has no effect on the direction of Linzhou Heavy i.e., Linzhou Heavy and Xinxiang Chemical go up and down completely randomly.

Pair Corralation between Linzhou Heavy and Xinxiang Chemical

Assuming the 90 days trading horizon Linzhou Heavy is expected to generate 1.15 times less return on investment than Xinxiang Chemical. But when comparing it to its historical volatility, Linzhou Heavy Machinery is 1.35 times less risky than Xinxiang Chemical. It trades about 0.24 of its potential returns per unit of risk. Xinxiang Chemical Fiber is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  309.00  in Xinxiang Chemical Fiber on September 13, 2024 and sell it today you would earn a total of  169.00  from holding Xinxiang Chemical Fiber or generate 54.69% return on investment over 90 days.

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

Linzhou Heavy Machinery  vs.  Xinxiang Chemical Fiber

Linzhou Heavy Machinery

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Linzhou Heavy Machinery are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Linzhou Heavy sustained solid returns over the last few months and may actually be approaching a breakup point.

Xinxiang Chemical Fiber

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xinxiang Chemical Fiber are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinxiang Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Linzhou Heavy and Xinxiang Chemical

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

The idea behind Linzhou Heavy Machinery and Xinxiang Chemical Fiber 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.