Correlation Between Daxin Materials and Nankang Rubber

Can any of the company-specific risk be diversified away by investing in both Daxin Materials 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 Daxin Materials and Nankang Rubber into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Daxin Materials Corp and Nankang Rubber Tire, you can compare the effects of market volatilities on Daxin Materials 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 Daxin Materials with a short position of Nankang Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daxin Materials and Nankang Rubber.

Diversification Opportunities for Daxin Materials and Nankang Rubber

-0.59

Correlation Coefficient

Daxin Materials  Nankang Rubber

Excellent diversification

The 3 months correlation between Daxin and Nankang is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Daxin Materials Corp 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 Daxin Materials 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 Daxin Materials Corp 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 Daxin Materials i.e., Daxin Materials and Nankang Rubber go up and down completely randomly.

Pair Corralation between Daxin Materials and Nankang Rubber

Assuming the 90 days trading horizon Daxin Materials Corp is expected to under-perform the Nankang Rubber. In addition to that, Daxin Materials is 1.86 times more volatile than Nankang Rubber Tire. It trades about -0.1 of its total potential returns per unit of risk. Nankang Rubber Tire is currently generating about 0.01 per unit of volatility. If you would invest  4,920  in Nankang Rubber Tire on September 2, 2024 and sell it today you would lose (10.00) from holding Nankang Rubber Tire or give up 0.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Daxin Materials Corp  vs.  Nankang Rubber Tire

Daxin Materials Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Daxin Materials Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Daxin Materials showed solid returns over the last few months and may actually be approaching a breakup point.

Nankang Rubber Tire

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with Daxin Materials and Nankang Rubber

The main advantage of trading using opposite Daxin Materials and Nankang Rubber positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daxin Materials 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 Daxin Materials Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.