Correlation Between Sinocat Environmental and Ningxia Younglight

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

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

Diversification Opportunities for Sinocat Environmental and Ningxia Younglight

0.55

Correlation Coefficient

Sinocat Environmental  Ningxia Younglight

Very weak diversification

The 3 months correlation between Sinocat and Ningxia is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Sinocat Environmental Technolo and Ningxia Younglight Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningxia Younglight and Sinocat 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 Sinocat Environmental Technology are associated (or correlated) with Ningxia Younglight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningxia Younglight has no effect on the direction of Sinocat Environmental i.e., Sinocat Environmental and Ningxia Younglight go up and down completely randomly.

Pair Corralation between Sinocat Environmental and Ningxia Younglight

Assuming the 90 days trading horizon Sinocat Environmental Technology is expected to generate 1.25 times more return on investment than Ningxia Younglight. However, Sinocat Environmental is 1.25 times more volatile than Ningxia Younglight Chemicals. It trades about 0.07 of its potential returns per unit of risk. Ningxia Younglight Chemicals is currently generating about 0.0 per unit of risk. If you would invest  1,793  in Sinocat Environmental Technology on September 28, 2024 and sell it today you would earn a total of  85.00  from holding Sinocat Environmental Technology or generate 4.74% return on investment over 90 days.

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

Sinocat Environmental Technolo  vs.  Ningxia Younglight Chemicals

Sinocat Environmental

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sinocat Environmental Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinocat Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Ningxia Younglight

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ningxia Younglight Chemicals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningxia Younglight sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sinocat Environmental and Ningxia Younglight

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

The idea behind Sinocat Environmental Technology and Ningxia Younglight Chemicals 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.