Correlation Between Dongxing Sec and Sichuan Furong

Can any of the company-specific risk be diversified away by investing in both Dongxing Sec and Sichuan Furong 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 Dongxing Sec and Sichuan Furong into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dongxing Sec Co and Sichuan Furong Technology, you can compare the effects of market volatilities on Dongxing Sec and Sichuan Furong 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 Dongxing Sec with a short position of Sichuan Furong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongxing Sec and Sichuan Furong.

Diversification Opportunities for Dongxing Sec and Sichuan Furong

0.83

Correlation Coefficient

Dongxing Sec  Sichuan Furong

Very poor diversification

The 3 months correlation between Dongxing and Sichuan is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Dongxing Sec Co and Sichuan Furong Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Furong Technology and Dongxing Sec 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 Dongxing Sec Co are associated (or correlated) with Sichuan Furong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Furong Technology has no effect on the direction of Dongxing Sec i.e., Dongxing Sec and Sichuan Furong go up and down completely randomly.

Pair Corralation between Dongxing Sec and Sichuan Furong

Assuming the 90 days trading horizon Dongxing Sec Co is expected to generate 1.05 times more return on investment than Sichuan Furong. However, Dongxing Sec is 1.05 times more volatile than Sichuan Furong Technology. It trades about 0.17 of its potential returns per unit of risk. Sichuan Furong Technology is currently generating about 0.14 per unit of risk. If you would invest  808.00  in Dongxing Sec Co on September 17, 2024 and sell it today you would earn a total of  360.00  from holding Dongxing Sec Co or generate 44.55% return on investment over 90 days.

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

Dongxing Sec Co  vs.  Sichuan Furong Technology

Dongxing Sec

Risk-Adjusted Performance

13 of 100

Good

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

Sichuan Furong Technology

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Furong Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Furong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dongxing Sec and Sichuan Furong

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

The idea behind Dongxing Sec Co and Sichuan Furong Technology 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.