Correlation Between Suzhou Weizhixiang and Weichai Heavy

Can any of the company-specific risk be diversified away by investing in both Suzhou Weizhixiang and Weichai Heavy 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 Suzhou Weizhixiang and Weichai Heavy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Suzhou Weizhixiang Food and Weichai Heavy Machinery, you can compare the effects of market volatilities on Suzhou Weizhixiang and Weichai Heavy 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 Suzhou Weizhixiang with a short position of Weichai Heavy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Suzhou Weizhixiang and Weichai Heavy.

Diversification Opportunities for Suzhou Weizhixiang and Weichai Heavy

0.81

Correlation Coefficient

Suzhou Weizhixiang  Weichai Heavy

Very poor diversification

The 3 months correlation between Suzhou and Weichai is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Suzhou Weizhixiang Food and Weichai Heavy Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weichai Heavy Machinery and Suzhou Weizhixiang 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 Suzhou Weizhixiang Food are associated (or correlated) with Weichai Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weichai Heavy Machinery has no effect on the direction of Suzhou Weizhixiang i.e., Suzhou Weizhixiang and Weichai Heavy go up and down completely randomly.

Pair Corralation between Suzhou Weizhixiang and Weichai Heavy

Assuming the 90 days trading horizon Suzhou Weizhixiang Food is expected to generate 0.95 times more return on investment than Weichai Heavy. However, Suzhou Weizhixiang Food is 1.05 times less risky than Weichai Heavy. It trades about 0.28 of its potential returns per unit of risk. Weichai Heavy Machinery is currently generating about 0.16 per unit of risk. If you would invest  1,666  in Suzhou Weizhixiang Food on September 15, 2024 and sell it today you would earn a total of  1,412  from holding Suzhou Weizhixiang Food or generate 84.75% return on investment over 90 days.

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

Suzhou Weizhixiang Food  vs.  Weichai Heavy Machinery

Suzhou Weizhixiang Food

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Suzhou Weizhixiang Food are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Suzhou Weizhixiang sustained solid returns over the last few months and may actually be approaching a breakup point.

Weichai Heavy Machinery

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Weichai Heavy Machinery are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Weichai Heavy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Suzhou Weizhixiang and Weichai Heavy

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

The idea behind Suzhou Weizhixiang Food and Weichai Heavy Machinery 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.