Correlation Between Hunan Investment and Zhejiang Construction

Can any of the company-specific risk be diversified away by investing in both Hunan Investment and Zhejiang Construction 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 Zhejiang Construction 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 Zhejiang Construction Investment, you can compare the effects of market volatilities on Hunan Investment and Zhejiang Construction 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 Zhejiang Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hunan Investment and Zhejiang Construction.

Diversification Opportunities for Hunan Investment and Zhejiang Construction

0.9

Correlation Coefficient

Hunan Investment  Zhejiang Construction

Almost no diversification

The 3 months correlation between Hunan and Zhejiang is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Investment Group and Zhejiang Construction Investme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Construction 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 Zhejiang Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Construction has no effect on the direction of Hunan Investment i.e., Hunan Investment and Zhejiang Construction go up and down completely randomly.

Pair Corralation between Hunan Investment and Zhejiang Construction

Assuming the 90 days trading horizon Hunan Investment Group is expected to generate 0.84 times more return on investment than Zhejiang Construction. However, Hunan Investment Group is 1.19 times less risky than Zhejiang Construction. It trades about 0.19 of its potential returns per unit of risk. Zhejiang Construction Investment is currently generating about 0.13 per unit of risk. If you would invest  403.00  in Hunan Investment Group on September 19, 2024 and sell it today you would earn a total of  166.00  from holding Hunan Investment Group or generate 41.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	96.67%
Values	Daily Returns

Hunan Investment Group  vs.  Zhejiang Construction Investme

Hunan Investment

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Investment Group are ranked lower than 14 (%) 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.

Zhejiang Construction

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Hunan Investment and Zhejiang Construction

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

The idea behind Hunan Investment Group and Zhejiang Construction 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.