Correlation Between Tjk Machinery and Xinjiang Communications

Can any of the company-specific risk be diversified away by investing in both Tjk Machinery and Xinjiang Communications 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 Tjk Machinery and Xinjiang Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tjk Machinery Tianjin and Xinjiang Communications Construction, you can compare the effects of market volatilities on Tjk Machinery and Xinjiang Communications 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 Tjk Machinery with a short position of Xinjiang Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tjk Machinery and Xinjiang Communications.

Diversification Opportunities for Tjk Machinery and Xinjiang Communications

0.89

Correlation Coefficient

Tjk Machinery  Xinjiang Communications

Very poor diversification

The 3 months correlation between Tjk and Xinjiang is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Tjk Machinery Tianjin and Xinjiang Communications Constr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Communications and Tjk Machinery 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 Tjk Machinery Tianjin are associated (or correlated) with Xinjiang Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Communications has no effect on the direction of Tjk Machinery i.e., Tjk Machinery and Xinjiang Communications go up and down completely randomly.

Pair Corralation between Tjk Machinery and Xinjiang Communications

Assuming the 90 days trading horizon Tjk Machinery Tianjin is expected to generate 1.16 times more return on investment than Xinjiang Communications. However, Tjk Machinery is 1.16 times more volatile than Xinjiang Communications Construction. It trades about 0.05 of its potential returns per unit of risk. Xinjiang Communications Construction is currently generating about 0.05 per unit of risk. If you would invest  1,295  in Tjk Machinery Tianjin on September 29, 2024 and sell it today you would earn a total of  101.00  from holding Tjk Machinery Tianjin or generate 7.8% return on investment over 90 days.

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

Tjk Machinery Tianjin  vs.  Xinjiang Communications Constr

Tjk Machinery Tianjin

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tjk Machinery Tianjin are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tjk Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

Xinjiang Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Communications Construction are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tjk Machinery and Xinjiang Communications

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

The idea behind Tjk Machinery Tianjin and Xinjiang Communications Construction 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 Transaction History module to view history of all your transactions and understand their impact on performance.