Correlation Between Aofu Environmental and Zhejiang Kingland

Can any of the company-specific risk be diversified away by investing in both Aofu Environmental and Zhejiang Kingland 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 Aofu Environmental and Zhejiang Kingland into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aofu Environmental Technology and Zhejiang Kingland Pipeline, you can compare the effects of market volatilities on Aofu Environmental and Zhejiang Kingland 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 Aofu Environmental with a short position of Zhejiang Kingland. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aofu Environmental and Zhejiang Kingland.

Diversification Opportunities for Aofu Environmental and Zhejiang Kingland

0.8

Correlation Coefficient

Aofu Environmental  Zhejiang Kingland

Very poor diversification

The 3 months correlation between Aofu and Zhejiang is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Aofu Environmental Technology and Zhejiang Kingland Pipeline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Kingland and Aofu Environmental 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 Aofu Environmental Technology are associated (or correlated) with Zhejiang Kingland. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Kingland has no effect on the direction of Aofu Environmental i.e., Aofu Environmental and Zhejiang Kingland go up and down completely randomly.

Pair Corralation between Aofu Environmental and Zhejiang Kingland

Assuming the 90 days trading horizon Aofu Environmental Technology is expected to under-perform the Zhejiang Kingland. In addition to that, Aofu Environmental is 1.61 times more volatile than Zhejiang Kingland Pipeline. It trades about -0.03 of its total potential returns per unit of risk. Zhejiang Kingland Pipeline is currently generating about 0.01 per unit of volatility. If you would invest  627.00  in Zhejiang Kingland Pipeline on September 24, 2024 and sell it today you would lose (14.00) from holding Zhejiang Kingland Pipeline or give up 2.23% of portfolio value over 90 days.

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

Aofu Environmental Technology  vs.  Zhejiang Kingland Pipeline

Aofu Environmental

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aofu Environmental Technology are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aofu Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhejiang Kingland

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Kingland Pipeline are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Kingland sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aofu Environmental and Zhejiang Kingland

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

The idea behind Aofu Environmental Technology and Zhejiang Kingland Pipeline 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.