Correlation Between Yangmei Chemical and Tongding Interconnection

Can any of the company-specific risk be diversified away by investing in both Yangmei Chemical and Tongding Interconnection 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 Yangmei Chemical and Tongding Interconnection into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Yangmei Chemical Co and Tongding Interconnection Information, you can compare the effects of market volatilities on Yangmei Chemical and Tongding Interconnection 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 Yangmei Chemical with a short position of Tongding Interconnection. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yangmei Chemical and Tongding Interconnection.

Diversification Opportunities for Yangmei Chemical and Tongding Interconnection

0.94

Correlation Coefficient

Yangmei Chemical  Tongding Interconnection

Almost no diversification

The 3 months correlation between Yangmei and Tongding is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Yangmei Chemical Co and Tongding Interconnection Infor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tongding Interconnection and Yangmei Chemical 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 Yangmei Chemical Co are associated (or correlated) with Tongding Interconnection. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tongding Interconnection has no effect on the direction of Yangmei Chemical i.e., Yangmei Chemical and Tongding Interconnection go up and down completely randomly.

Pair Corralation between Yangmei Chemical and Tongding Interconnection

Assuming the 90 days trading horizon Yangmei Chemical Co is expected to under-perform the Tongding Interconnection. But the stock apears to be less risky and, when comparing its historical volatility, Yangmei Chemical Co is 1.09 times less risky than Tongding Interconnection. The stock trades about -0.01 of its potential returns per unit of risk. The Tongding Interconnection Information is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  482.00  in Tongding Interconnection Information on September 5, 2024 and sell it today you would lose (13.00) from holding Tongding Interconnection Information or give up 2.7% of portfolio value over 90 days.

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

Yangmei Chemical Co  vs.  Tongding Interconnection Infor

Yangmei Chemical

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Yangmei Chemical Co are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yangmei Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Tongding Interconnection

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tongding Interconnection Information are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tongding Interconnection sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yangmei Chemical and Tongding Interconnection

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

The idea behind Yangmei Chemical Co and Tongding Interconnection Information 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.