Correlation Between Hunan Investment and Maoming Petro

Can any of the company-specific risk be diversified away by investing in both Hunan Investment and Maoming Petro 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 Hunan Investment and Maoming Petro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hunan Investment Group and Maoming Petro Chemical Shihua, you can compare the effects of market volatilities on Hunan Investment and Maoming Petro 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 Hunan Investment with a short position of Maoming Petro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hunan Investment and Maoming Petro.

Diversification Opportunities for Hunan Investment and Maoming Petro

0.88

Correlation Coefficient

Hunan Investment  Maoming Petro

Very poor diversification

The 3 months correlation between Hunan and Maoming is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Investment Group and Maoming Petro Chemical Shihua in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maoming Petro Chemical and Hunan Investment 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 Hunan Investment Group are associated (or correlated) with Maoming Petro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maoming Petro Chemical has no effect on the direction of Hunan Investment i.e., Hunan Investment and Maoming Petro go up and down completely randomly.

Pair Corralation between Hunan Investment and Maoming Petro

Assuming the 90 days trading horizon Hunan Investment Group is expected to under-perform the Maoming Petro. In addition to that, Hunan Investment is 1.13 times more volatile than Maoming Petro Chemical Shihua. It trades about -0.29 of its total potential returns per unit of risk. Maoming Petro Chemical Shihua is currently generating about -0.03 per unit of volatility. If you would invest  396.00  in Maoming Petro Chemical Shihua on September 26, 2024 and sell it today you would lose (8.00) from holding Maoming Petro Chemical Shihua or give up 2.02% of portfolio value over 90 days.

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

Hunan Investment Group  vs.  Maoming Petro Chemical Shihua

Hunan Investment

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Investment Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Maoming Petro Chemical

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Maoming Petro Chemical Shihua are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Maoming Petro sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hunan Investment and Maoming Petro

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

The idea behind Hunan Investment Group and Maoming Petro Chemical Shihua 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.