Correlation Between Shantou Wanshun and Xinke Material

Can any of the company-specific risk be diversified away by investing in both Shantou Wanshun and Xinke Material 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 Shantou Wanshun and Xinke Material into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shantou Wanshun Package and Xinke Material, you can compare the effects of market volatilities on Shantou Wanshun and Xinke Material 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 Shantou Wanshun with a short position of Xinke Material. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shantou Wanshun and Xinke Material.

Diversification Opportunities for Shantou Wanshun and Xinke Material

0.76

Correlation Coefficient

Shantou Wanshun  Xinke Material

Poor diversification

The 3 months correlation between Shantou and Xinke is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Shantou Wanshun Package and Xinke Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinke Material and Shantou Wanshun 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 Shantou Wanshun Package are associated (or correlated) with Xinke Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinke Material has no effect on the direction of Shantou Wanshun i.e., Shantou Wanshun and Xinke Material go up and down completely randomly.

Pair Corralation between Shantou Wanshun and Xinke Material

Assuming the 90 days trading horizon Shantou Wanshun is expected to generate 2.8 times less return on investment than Xinke Material. In addition to that, Shantou Wanshun is 1.26 times more volatile than Xinke Material. It trades about 0.01 of its total potential returns per unit of risk. Xinke Material is currently generating about 0.05 per unit of volatility. If you would invest  213.00  in Xinke Material on September 15, 2024 and sell it today you would earn a total of  66.00  from holding Xinke Material or generate 30.99% return on investment over 90 days.

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

Shantou Wanshun Package  vs.  Xinke Material

Shantou Wanshun Package

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shantou Wanshun Package are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shantou Wanshun sustained solid returns over the last few months and may actually be approaching a breakup point.

Xinke Material

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xinke Material are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinke Material sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shantou Wanshun and Xinke Material

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

The idea behind Shantou Wanshun Package and Xinke Material 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.