Correlation Between Zeng Hsing and Drewloong Precision

Can any of the company-specific risk be diversified away by investing in both Zeng Hsing and Drewloong Precision 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 Zeng Hsing and Drewloong Precision into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zeng Hsing Industrial and Drewloong Precision, you can compare the effects of market volatilities on Zeng Hsing and Drewloong Precision 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 Zeng Hsing with a short position of Drewloong Precision. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zeng Hsing and Drewloong Precision.

Diversification Opportunities for Zeng Hsing and Drewloong Precision

0.68

Correlation Coefficient

Zeng Hsing  Drewloong Precision

Poor diversification

The 3 months correlation between Zeng and Drewloong is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Zeng Hsing Industrial and Drewloong Precision in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Drewloong Precision and Zeng Hsing 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 Zeng Hsing Industrial are associated (or correlated) with Drewloong Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Drewloong Precision has no effect on the direction of Zeng Hsing i.e., Zeng Hsing and Drewloong Precision go up and down completely randomly.

Pair Corralation between Zeng Hsing and Drewloong Precision

Assuming the 90 days trading horizon Zeng Hsing Industrial is expected to under-perform the Drewloong Precision. But the stock apears to be less risky and, when comparing its historical volatility, Zeng Hsing Industrial is 1.0 times less risky than Drewloong Precision. The stock trades about -0.18 of its potential returns per unit of risk. The Drewloong Precision is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  16,250  in Drewloong Precision on September 16, 2024 and sell it today you would lose (1,150) from holding Drewloong Precision or give up 7.08% of portfolio value over 90 days.

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

Zeng Hsing Industrial  vs.  Drewloong Precision

Zeng Hsing Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zeng Hsing Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Drewloong Precision

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Drewloong Precision has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Zeng Hsing and Drewloong Precision

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

The idea behind Zeng Hsing Industrial and Drewloong Precision 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.