Correlation Between Zhongrun Resources and Hubei Geoway

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

By analyzing existing cross correlation between Zhongrun Resources Investment and Hubei Geoway Investment, you can compare the effects of market volatilities on Zhongrun Resources and Hubei Geoway 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 Zhongrun Resources with a short position of Hubei Geoway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongrun Resources and Hubei Geoway.

Diversification Opportunities for Zhongrun Resources and Hubei Geoway

0.54

Correlation Coefficient

Zhongrun Resources  Hubei Geoway

Very weak diversification

The 3 months correlation between Zhongrun and Hubei is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Zhongrun Resources Investment and Hubei Geoway Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Geoway Investment and Zhongrun Resources 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 Zhongrun Resources Investment are associated (or correlated) with Hubei Geoway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Geoway Investment has no effect on the direction of Zhongrun Resources i.e., Zhongrun Resources and Hubei Geoway go up and down completely randomly.

Pair Corralation between Zhongrun Resources and Hubei Geoway

Assuming the 90 days trading horizon Zhongrun Resources is expected to generate 1.13 times less return on investment than Hubei Geoway. In addition to that, Zhongrun Resources is 1.13 times more volatile than Hubei Geoway Investment. It trades about 0.22 of its total potential returns per unit of risk. Hubei Geoway Investment is currently generating about 0.28 per unit of volatility. If you would invest  147.00  in Hubei Geoway Investment on September 24, 2024 and sell it today you would earn a total of  28.00  from holding Hubei Geoway Investment or generate 19.05% return on investment over 90 days.

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

Zhongrun Resources Investment  vs.  Hubei Geoway Investment

Zhongrun Resources

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongrun Resources Investment are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongrun Resources sustained solid returns over the last few months and may actually be approaching a breakup point.

Hubei Geoway Investment

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Geoway Investment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Geoway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhongrun Resources and Hubei Geoway

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

The idea behind Zhongrun Resources Investment and Hubei Geoway Investment 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.