Correlation Between Hainan Pearl and Tibet Huayu

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

By analyzing existing cross correlation between Hainan Pearl River and Tibet Huayu Mining, you can compare the effects of market volatilities on Hainan Pearl and Tibet Huayu 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 Hainan Pearl with a short position of Tibet Huayu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hainan Pearl and Tibet Huayu.

Diversification Opportunities for Hainan Pearl and Tibet Huayu

0.07

Correlation Coefficient

Hainan Pearl  Tibet Huayu

Significant diversification

The 3 months correlation between Hainan and Tibet is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Pearl River and Tibet Huayu Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tibet Huayu Mining and Hainan Pearl 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 Hainan Pearl River are associated (or correlated) with Tibet Huayu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tibet Huayu Mining has no effect on the direction of Hainan Pearl i.e., Hainan Pearl and Tibet Huayu go up and down completely randomly.

Pair Corralation between Hainan Pearl and Tibet Huayu

Assuming the 90 days trading horizon Hainan Pearl River is expected to under-perform the Tibet Huayu. But the stock apears to be less risky and, when comparing its historical volatility, Hainan Pearl River is 2.3 times less risky than Tibet Huayu. The stock trades about -0.01 of its potential returns per unit of risk. The Tibet Huayu Mining is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,330  in Tibet Huayu Mining on December 24, 2024 and sell it today you would earn a total of  1,008  from holding Tibet Huayu Mining or generate 75.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Hainan Pearl River  vs.  Tibet Huayu Mining

Hainan Pearl River

Risk-Adjusted Performance

Very Weak

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

Tibet Huayu Mining

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Tibet Huayu Mining are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tibet Huayu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hainan Pearl and Tibet Huayu

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

The idea behind Hainan Pearl River and Tibet Huayu Mining 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.