Correlation Between Sichuan Fulin and Zhongrun Resources

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Can any of the company-specific risk be diversified away by investing in both Sichuan Fulin and Zhongrun Resources 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 Sichuan Fulin and Zhongrun Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sichuan Fulin Transportation and Zhongrun Resources Investment, you can compare the effects of market volatilities on Sichuan Fulin and Zhongrun Resources 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 Sichuan Fulin with a short position of Zhongrun Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Fulin and Zhongrun Resources.

Diversification Opportunities for Sichuan Fulin and Zhongrun Resources

0.56
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Sichuan and Zhongrun is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Fulin Transportation and Zhongrun Resources Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongrun Resources and Sichuan Fulin 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 Sichuan Fulin Transportation are associated (or correlated) with Zhongrun Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongrun Resources has no effect on the direction of Sichuan Fulin i.e., Sichuan Fulin and Zhongrun Resources go up and down completely randomly.

Pair Corralation between Sichuan Fulin and Zhongrun Resources

Assuming the 90 days trading horizon Sichuan Fulin Transportation is expected to under-perform the Zhongrun Resources. But the stock apears to be less risky and, when comparing its historical volatility, Sichuan Fulin Transportation is 1.32 times less risky than Zhongrun Resources. The stock trades about -0.26 of its potential returns per unit of risk. The Zhongrun Resources Investment is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  312.00  in Zhongrun Resources Investment on October 16, 2024 and sell it today you would earn a total of  93.00  from holding Zhongrun Resources Investment or generate 29.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Sichuan Fulin Transportation  vs.  Zhongrun Resources Investment

 Performance 
       Timeline  
Sichuan Fulin Transp 

Risk-Adjusted Performance

7 of 100

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

Risk-Adjusted Performance

29 of 100

 
Weak
 
Strong
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Zhongrun Resources Investment are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongrun Resources sustained solid returns over the last few months and may actually be approaching a breakup point.

Sichuan Fulin and Zhongrun Resources Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Sichuan Fulin and Zhongrun Resources

The main advantage of trading using opposite Sichuan Fulin and Zhongrun Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sichuan Fulin position performs unexpectedly, Zhongrun Resources 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 Zhongrun Resources will offset losses from the drop in Zhongrun Resources' long position.
The idea behind Sichuan Fulin Transportation and Zhongrun Resources Investment 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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