Correlation Between Xinjiang Tianrun and Gan Yuan

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

By analyzing existing cross correlation between Xinjiang Tianrun Dairy and Gan Yuan Foods, you can compare the effects of market volatilities on Xinjiang Tianrun and Gan Yuan 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 Xinjiang Tianrun with a short position of Gan Yuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinjiang Tianrun and Gan Yuan.

Diversification Opportunities for Xinjiang Tianrun and Gan Yuan

0.86

Correlation Coefficient

Xinjiang Tianrun  Gan Yuan

Very poor diversification

The 3 months correlation between Xinjiang and Gan is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Xinjiang Tianrun Dairy and Gan Yuan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gan Yuan Foods and Xinjiang Tianrun 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 Xinjiang Tianrun Dairy are associated (or correlated) with Gan Yuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gan Yuan Foods has no effect on the direction of Xinjiang Tianrun i.e., Xinjiang Tianrun and Gan Yuan go up and down completely randomly.

Pair Corralation between Xinjiang Tianrun and Gan Yuan

Assuming the 90 days trading horizon Xinjiang Tianrun is expected to generate 3.84 times less return on investment than Gan Yuan. In addition to that, Xinjiang Tianrun is 1.04 times more volatile than Gan Yuan Foods. It trades about 0.04 of its total potential returns per unit of risk. Gan Yuan Foods is currently generating about 0.17 per unit of volatility. If you would invest  6,799  in Gan Yuan Foods on October 1, 2024 and sell it today you would earn a total of  1,996  from holding Gan Yuan Foods or generate 29.36% return on investment over 90 days.

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

Xinjiang Tianrun Dairy  vs.  Gan Yuan Foods

Xinjiang Tianrun Dairy

Risk-Adjusted Performance

3 of 100

Insignificant

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

Gan Yuan Foods

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gan Yuan Foods are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Gan Yuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xinjiang Tianrun and Gan Yuan

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

The idea behind Xinjiang Tianrun Dairy and Gan Yuan Foods 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.