Correlation Between Xiamen Insight and Hengdian Entertainment

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

By analyzing existing cross correlation between Xiamen Insight Investment and Hengdian Entertainment Co, you can compare the effects of market volatilities on Xiamen Insight and Hengdian Entertainment 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 Xiamen Insight with a short position of Hengdian Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiamen Insight and Hengdian Entertainment.

Diversification Opportunities for Xiamen Insight and Hengdian Entertainment

0.03

Correlation Coefficient

Xiamen Insight  Hengdian Entertainment

Significant diversification

The 3 months correlation between Xiamen and Hengdian is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Xiamen Insight Investment and Hengdian Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengdian Entertainment and Xiamen Insight 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 Xiamen Insight Investment are associated (or correlated) with Hengdian Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengdian Entertainment has no effect on the direction of Xiamen Insight i.e., Xiamen Insight and Hengdian Entertainment go up and down completely randomly.

Pair Corralation between Xiamen Insight and Hengdian Entertainment

Assuming the 90 days trading horizon Xiamen Insight Investment is expected to generate 0.74 times more return on investment than Hengdian Entertainment. However, Xiamen Insight Investment is 1.36 times less risky than Hengdian Entertainment. It trades about 0.09 of its potential returns per unit of risk. Hengdian Entertainment Co is currently generating about -0.07 per unit of risk. If you would invest  4,349  in Xiamen Insight Investment on December 26, 2024 and sell it today you would earn a total of  575.00  from holding Xiamen Insight Investment or generate 13.22% return on investment over 90 days.

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

Xiamen Insight Investment  vs.  Hengdian Entertainment Co

Xiamen Insight Investment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen Insight Investment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xiamen Insight sustained solid returns over the last few months and may actually be approaching a breakup point.

Hengdian Entertainment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hengdian Entertainment Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Xiamen Insight and Hengdian Entertainment

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

The idea behind Xiamen Insight Investment and Hengdian Entertainment Co 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.