Correlation Between China Baoan and Hunan Nanling

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

By analyzing existing cross correlation between China Baoan Group and Hunan Nanling Industrial, you can compare the effects of market volatilities on China Baoan and Hunan Nanling 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 China Baoan with a short position of Hunan Nanling. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Baoan and Hunan Nanling.

Diversification Opportunities for China Baoan and Hunan Nanling

0.63

Correlation Coefficient

China Baoan  Hunan Nanling

Poor diversification

The 3 months correlation between China and Hunan is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding China Baoan Group and Hunan Nanling Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunan Nanling Industrial and China Baoan 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 China Baoan Group are associated (or correlated) with Hunan Nanling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunan Nanling Industrial has no effect on the direction of China Baoan i.e., China Baoan and Hunan Nanling go up and down completely randomly.

Pair Corralation between China Baoan and Hunan Nanling

Assuming the 90 days trading horizon China Baoan Group is expected to under-perform the Hunan Nanling. But the stock apears to be less risky and, when comparing its historical volatility, China Baoan Group is 1.1 times less risky than Hunan Nanling. The stock trades about -0.01 of its potential returns per unit of risk. The Hunan Nanling Industrial is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,379  in Hunan Nanling Industrial on September 26, 2024 and sell it today you would lose (143.00) from holding Hunan Nanling Industrial or give up 10.37% of portfolio value over 90 days.

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

China Baoan Group  vs.  Hunan Nanling Industrial

China Baoan Group

Risk-Adjusted Performance

6 of 100

Modest

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

Hunan Nanling Industrial

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with China Baoan and Hunan Nanling

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

The idea behind China Baoan Group and Hunan Nanling Industrial 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.