Correlation Between Cultural Investment and WuXi Xinje

Can any of the company-specific risk be diversified away by investing in both Cultural Investment and WuXi Xinje 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 Cultural Investment and WuXi Xinje into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cultural Investment Holdings and WuXi Xinje Electric, you can compare the effects of market volatilities on Cultural Investment and WuXi Xinje 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 Cultural Investment with a short position of WuXi Xinje. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cultural Investment and WuXi Xinje.

Diversification Opportunities for Cultural Investment and WuXi Xinje

0.7

Correlation Coefficient

Cultural Investment  WuXi Xinje

Poor diversification

The 3 months correlation between Cultural and WuXi is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Cultural Investment Holdings and WuXi Xinje Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WuXi Xinje Electric and Cultural Investment 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 Cultural Investment Holdings are associated (or correlated) with WuXi Xinje. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WuXi Xinje Electric has no effect on the direction of Cultural Investment i.e., Cultural Investment and WuXi Xinje go up and down completely randomly.

Pair Corralation between Cultural Investment and WuXi Xinje

Assuming the 90 days trading horizon Cultural Investment is expected to generate 1.63 times less return on investment than WuXi Xinje. In addition to that, Cultural Investment is 1.05 times more volatile than WuXi Xinje Electric. It trades about 0.12 of its total potential returns per unit of risk. WuXi Xinje Electric is currently generating about 0.21 per unit of volatility. If you would invest  2,853  in WuXi Xinje Electric on September 23, 2024 and sell it today you would earn a total of  1,337  from holding WuXi Xinje Electric or generate 46.86% return on investment over 90 days.

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

Cultural Investment Holdings  vs.  WuXi Xinje Electric

Cultural Investment

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cultural Investment Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cultural Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

WuXi Xinje Electric

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WuXi Xinje Electric are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, WuXi Xinje sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cultural Investment and WuXi Xinje

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

The idea behind Cultural Investment Holdings and WuXi Xinje Electric 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.