Correlation Between Hunan Investment and Tibet Huayu

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

Diversification Opportunities for Hunan Investment and Tibet Huayu

0.68

Correlation Coefficient

Hunan Investment  Tibet Huayu

Poor diversification

The 3 months correlation between Hunan and Tibet is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Investment Group and Tibet Huayu Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tibet Huayu Mining 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 Tibet Huayu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tibet Huayu Mining has no effect on the direction of Hunan Investment i.e., Hunan Investment and Tibet Huayu go up and down completely randomly.

Pair Corralation between Hunan Investment and Tibet Huayu

Assuming the 90 days trading horizon Hunan Investment is expected to generate 2.74 times less return on investment than Tibet Huayu. But when comparing it to its historical volatility, Hunan Investment Group is 1.37 times less risky than Tibet Huayu. It trades about 0.01 of its potential returns per unit of risk. Tibet Huayu Mining is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,064  in Tibet Huayu Mining on October 5, 2024 and sell it today you would earn a total of  167.00  from holding Tibet Huayu Mining or generate 15.7% return on investment over 90 days.

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

Hunan Investment Group  vs.  Tibet Huayu Mining

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 somewhat strong basic indicators, Hunan Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tibet Huayu Mining

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Hunan Investment and Tibet Huayu

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

The idea behind Hunan Investment Group and Tibet Huayu Mining 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.