Correlation Between Hunan Investment and Ningxia Xiaoming

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

Diversification Opportunities for Hunan Investment and Ningxia Xiaoming

0.52

Correlation Coefficient

Hunan Investment  Ningxia Xiaoming

Very weak diversification

The 3 months correlation between Hunan and Ningxia is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Investment Group and Ningxia Xiaoming Agriculture in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningxia Xiaoming Agr 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 Ningxia Xiaoming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningxia Xiaoming Agr has no effect on the direction of Hunan Investment i.e., Hunan Investment and Ningxia Xiaoming go up and down completely randomly.

Pair Corralation between Hunan Investment and Ningxia Xiaoming

Assuming the 90 days trading horizon Hunan Investment Group is expected to generate 1.1 times more return on investment than Ningxia Xiaoming. However, Hunan Investment is 1.1 times more volatile than Ningxia Xiaoming Agriculture. It trades about -0.01 of its potential returns per unit of risk. Ningxia Xiaoming Agriculture is currently generating about -0.1 per unit of risk. If you would invest  509.00  in Hunan Investment Group on October 6, 2024 and sell it today you would lose (17.00) from holding Hunan Investment Group or give up 3.34% of portfolio value over 90 days.

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

Hunan Investment Group  vs.  Ningxia Xiaoming Agriculture

Hunan Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hunan Investment Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Ningxia Xiaoming Agr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ningxia Xiaoming Agriculture has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Hunan Investment and Ningxia Xiaoming

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

The idea behind Hunan Investment Group and Ningxia Xiaoming Agriculture 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.