Correlation Between X Financial and Yirendai

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

By analyzing existing cross correlation between X Financial Class and Yirendai, you can compare the effects of market volatilities on X Financial and Yirendai 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 X Financial with a short position of Yirendai. Check out your portfolio center. Please also check ongoing floating volatility patterns of X Financial and Yirendai.

Diversification Opportunities for X Financial and Yirendai

0.33

Correlation Coefficient

X Financial  Yirendai

Weak diversification

The 3 months correlation between XYF and Yirendai is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding X Financial Class and Yirendai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yirendai and X Financial 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 X Financial Class are associated (or correlated) with Yirendai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yirendai has no effect on the direction of X Financial i.e., X Financial and Yirendai go up and down completely randomly.

Pair Corralation between X Financial and Yirendai

Considering the 90-day investment horizon X Financial is expected to generate 17.51 times less return on investment than Yirendai. But when comparing it to its historical volatility, X Financial Class is 1.22 times less risky than Yirendai. It trades about 0.01 of its potential returns per unit of risk. Yirendai is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  440.00  in Yirendai on February 4, 2024 and sell it today you would earn a total of  81.00  from holding Yirendai or generate 18.41% return on investment over 90 days.

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

X Financial Class  vs.  Yirendai

X Financial Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X Financial Class has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, X Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Yirendai

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yirendai are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Yirendai exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with X Financial and Yirendai

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

The idea behind X Financial Class and Yirendai 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 Transaction History module to view history of all your transactions and understand their impact on performance.