Correlation Between Central Plains and Anhui Huaren

Can any of the company-specific risk be diversified away by investing in both Central Plains and Anhui Huaren 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 Central Plains and Anhui Huaren into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Central Plains Environment and Anhui Huaren Health, you can compare the effects of market volatilities on Central Plains and Anhui Huaren 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 Central Plains with a short position of Anhui Huaren. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Plains and Anhui Huaren.

Diversification Opportunities for Central Plains and Anhui Huaren

0.8

Correlation Coefficient

Central Plains  Anhui Huaren

Very poor diversification

The 3 months correlation between Central and Anhui is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Central Plains Environment and Anhui Huaren Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Huaren Health and Central Plains 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 Central Plains Environment are associated (or correlated) with Anhui Huaren. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Huaren Health has no effect on the direction of Central Plains i.e., Central Plains and Anhui Huaren go up and down completely randomly.

Pair Corralation between Central Plains and Anhui Huaren

Assuming the 90 days trading horizon Central Plains Environment is expected to generate 0.68 times more return on investment than Anhui Huaren. However, Central Plains Environment is 1.48 times less risky than Anhui Huaren. It trades about 0.06 of its potential returns per unit of risk. Anhui Huaren Health is currently generating about -0.03 per unit of risk. If you would invest  682.00  in Central Plains Environment on October 3, 2024 and sell it today you would earn a total of  191.00  from holding Central Plains Environment or generate 28.01% return on investment over 90 days.

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

Central Plains Environment  vs.  Anhui Huaren Health

Central Plains Envir

Risk-Adjusted Performance

0 of 100

Weak

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

Anhui Huaren Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Anhui Huaren Health 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Central Plains and Anhui Huaren

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

The idea behind Central Plains Environment and Anhui Huaren Health 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..