Correlation Between Zhejiang Yayi and China State

Can any of the company-specific risk be diversified away by investing in both Zhejiang Yayi and China State 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 Zhejiang Yayi and China State into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhejiang Yayi Metal and China State Construction, you can compare the effects of market volatilities on Zhejiang Yayi and China State 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 Zhejiang Yayi with a short position of China State. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Yayi and China State.

Diversification Opportunities for Zhejiang Yayi and China State

0.85

Correlation Coefficient

Zhejiang Yayi  China State

Very poor diversification

The 3 months correlation between Zhejiang and China is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Yayi Metal and China State Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China State Construction and Zhejiang Yayi 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 Zhejiang Yayi Metal are associated (or correlated) with China State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China State Construction has no effect on the direction of Zhejiang Yayi i.e., Zhejiang Yayi and China State go up and down completely randomly.

Pair Corralation between Zhejiang Yayi and China State

Assuming the 90 days trading horizon Zhejiang Yayi Metal is expected to generate 1.32 times more return on investment than China State. However, Zhejiang Yayi is 1.32 times more volatile than China State Construction. It trades about 0.19 of its potential returns per unit of risk. China State Construction is currently generating about 0.16 per unit of risk. If you would invest  1,857  in Zhejiang Yayi Metal on September 13, 2024 and sell it today you would earn a total of  869.00  from holding Zhejiang Yayi Metal or generate 46.8% return on investment over 90 days.

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

Zhejiang Yayi Metal  vs.  China State Construction

Zhejiang Yayi Metal

Risk-Adjusted Performance

15 of 100

Good

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

China State Construction

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Zhejiang Yayi and China State

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

The idea behind Zhejiang Yayi Metal and China State 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.