Correlation Between North Huajin and Hua Xia

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

By analyzing existing cross correlation between North Huajin Chemical and Hua Xia Bank, you can compare the effects of market volatilities on North Huajin and Hua Xia 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 North Huajin with a short position of Hua Xia. Check out your portfolio center. Please also check ongoing floating volatility patterns of North Huajin and Hua Xia.

Diversification Opportunities for North Huajin and Hua Xia

0.23

Correlation Coefficient

North Huajin  Hua Xia

Modest diversification

The 3 months correlation between North and Hua is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding North Huajin Chemical and Hua Xia Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hua Xia Bank and North Huajin 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 North Huajin Chemical are associated (or correlated) with Hua Xia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hua Xia Bank has no effect on the direction of North Huajin i.e., North Huajin and Hua Xia go up and down completely randomly.

Pair Corralation between North Huajin and Hua Xia

Assuming the 90 days trading horizon North Huajin Chemical is expected to generate 1.38 times more return on investment than Hua Xia. However, North Huajin is 1.38 times more volatile than Hua Xia Bank. It trades about -0.03 of its potential returns per unit of risk. Hua Xia Bank is currently generating about -0.05 per unit of risk. If you would invest  492.00  in North Huajin Chemical on December 25, 2024 and sell it today you would lose (21.00) from holding North Huajin Chemical or give up 4.27% of portfolio value over 90 days.

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

North Huajin Chemical  vs.  Hua Xia Bank

North Huajin Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days North Huajin Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, North Huajin is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hua Xia Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hua Xia Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hua Xia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with North Huajin and Hua Xia

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

The idea behind North Huajin Chemical and Hua Xia Bank 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..