Correlation Between Yulon and Nankang Rubber

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Can any of the company-specific risk be diversified away by investing in both Yulon and Nankang Rubber 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 Yulon and Nankang Rubber into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yulon Motor Co and Nankang Rubber Tire, you can compare the effects of market volatilities on Yulon and Nankang Rubber 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 Yulon with a short position of Nankang Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yulon and Nankang Rubber.

Diversification Opportunities for Yulon and Nankang Rubber

-0.33
  Correlation Coefficient

Very good diversification

The 3 months correlation between Yulon and Nankang is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Yulon Motor Co and Nankang Rubber Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nankang Rubber Tire and Yulon 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 Yulon Motor Co are associated (or correlated) with Nankang Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nankang Rubber Tire has no effect on the direction of Yulon i.e., Yulon and Nankang Rubber go up and down completely randomly.

Pair Corralation between Yulon and Nankang Rubber

Assuming the 90 days trading horizon Yulon is expected to generate 4.7 times less return on investment than Nankang Rubber. In addition to that, Yulon is 1.24 times more volatile than Nankang Rubber Tire. It trades about 0.02 of its total potential returns per unit of risk. Nankang Rubber Tire is currently generating about 0.09 per unit of volatility. If you would invest  4,890  in Nankang Rubber Tire on September 6, 2024 and sell it today you would earn a total of  180.00  from holding Nankang Rubber Tire or generate 3.68% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Yulon Motor Co  vs.  Nankang Rubber Tire

 Performance 
       Timeline  
Yulon Motor 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Yulon Motor Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Yulon may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Nankang Rubber Tire 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Nankang Rubber Tire has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Nankang Rubber is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Yulon and Nankang Rubber Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Yulon and Nankang Rubber

The main advantage of trading using opposite Yulon and Nankang Rubber positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yulon position performs unexpectedly, Nankang Rubber 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 Nankang Rubber will offset losses from the drop in Nankang Rubber's long position.
The idea behind Yulon Motor Co and Nankang Rubber Tire 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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