Correlation Between Forestar and Xinyuan Real

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

By analyzing existing cross correlation between Forestar Group and Xinyuan Real Estate, you can compare the effects of market volatilities on Forestar and Xinyuan Real 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 Forestar with a short position of Xinyuan Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of Forestar and Xinyuan Real.

Diversification Opportunities for Forestar and Xinyuan Real

0.4

Correlation Coefficient

Forestar  Xinyuan Real

Very weak diversification

The 3 months correlation between Forestar and Xinyuan is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Forestar Group and Xinyuan Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinyuan Real Estate and Forestar 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 Forestar Group are associated (or correlated) with Xinyuan Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinyuan Real Estate has no effect on the direction of Forestar i.e., Forestar and Xinyuan Real go up and down completely randomly.

Pair Corralation between Forestar and Xinyuan Real

Considering the 90-day investment horizon Forestar is expected to generate 32.04 times less return on investment than Xinyuan Real. But when comparing it to its historical volatility, Forestar Group is 4.58 times less risky than Xinyuan Real. It trades about 0.01 of its potential returns per unit of risk. Xinyuan Real Estate is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  299.00  in Xinyuan Real Estate on July 31, 2024 and sell it today you would earn a total of  87.00  from holding Xinyuan Real Estate or generate 29.1% return on investment over 90 days.

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

Forestar Group  vs.  Xinyuan Real Estate

Forestar Group

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Forestar Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Forestar is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Xinyuan Real Estate

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xinyuan Real Estate are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, Xinyuan Real displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Forestar and Xinyuan Real

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

The idea behind Forestar Group and Xinyuan Real Estate 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.