Correlation Between Nanxing Furniture and Guangdong Jinming

Can any of the company-specific risk be diversified away by investing in both Nanxing Furniture and Guangdong Jinming 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 Nanxing Furniture and Guangdong Jinming into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nanxing Furniture Machinery and Guangdong Jinming Machinery, you can compare the effects of market volatilities on Nanxing Furniture and Guangdong Jinming 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 Nanxing Furniture with a short position of Guangdong Jinming. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nanxing Furniture and Guangdong Jinming.

Diversification Opportunities for Nanxing Furniture and Guangdong Jinming

0.75

Correlation Coefficient

Nanxing Furniture  Guangdong Jinming

Poor diversification

The 3 months correlation between Nanxing and Guangdong is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Nanxing Furniture Machinery and Guangdong Jinming Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Jinming and Nanxing Furniture 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 Nanxing Furniture Machinery are associated (or correlated) with Guangdong Jinming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Jinming has no effect on the direction of Nanxing Furniture i.e., Nanxing Furniture and Guangdong Jinming go up and down completely randomly.

Pair Corralation between Nanxing Furniture and Guangdong Jinming

Assuming the 90 days trading horizon Nanxing Furniture is expected to generate 1.3 times less return on investment than Guangdong Jinming. But when comparing it to its historical volatility, Nanxing Furniture Machinery is 1.12 times less risky than Guangdong Jinming. It trades about 0.17 of its potential returns per unit of risk. Guangdong Jinming Machinery is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  431.00  in Guangdong Jinming Machinery on September 14, 2024 and sell it today you would earn a total of  271.00  from holding Guangdong Jinming Machinery or generate 62.88% return on investment over 90 days.

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

Nanxing Furniture Machinery  vs.  Guangdong Jinming Machinery

Nanxing Furniture

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nanxing Furniture Machinery are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanxing Furniture sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangdong Jinming

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Jinming Machinery are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Jinming sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nanxing Furniture and Guangdong Jinming

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

The idea behind Nanxing Furniture Machinery and Guangdong Jinming Machinery 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.