Correlation Between Hainan Haiyao and Hefei Metalforming

Can any of the company-specific risk be diversified away by investing in both Hainan Haiyao and Hefei Metalforming 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 Hainan Haiyao and Hefei Metalforming into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hainan Haiyao Co and Hefei Metalforming Mach, you can compare the effects of market volatilities on Hainan Haiyao and Hefei Metalforming 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 Hainan Haiyao with a short position of Hefei Metalforming. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hainan Haiyao and Hefei Metalforming.

Diversification Opportunities for Hainan Haiyao and Hefei Metalforming

0.76

Correlation Coefficient

Hainan Haiyao  Hefei Metalforming

Poor diversification

The 3 months correlation between Hainan and Hefei is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Haiyao Co and Hefei Metalforming Mach in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hefei Metalforming Mach and Hainan Haiyao 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 Hainan Haiyao Co are associated (or correlated) with Hefei Metalforming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hefei Metalforming Mach has no effect on the direction of Hainan Haiyao i.e., Hainan Haiyao and Hefei Metalforming go up and down completely randomly.

Pair Corralation between Hainan Haiyao and Hefei Metalforming

Assuming the 90 days trading horizon Hainan Haiyao Co is expected to generate 1.34 times more return on investment than Hefei Metalforming. However, Hainan Haiyao is 1.34 times more volatile than Hefei Metalforming Mach. It trades about 0.01 of its potential returns per unit of risk. Hefei Metalforming Mach is currently generating about -0.02 per unit of risk. If you would invest  472.00  in Hainan Haiyao Co on October 8, 2024 and sell it today you would lose (22.00) from holding Hainan Haiyao Co or give up 4.66% of portfolio value over 90 days.

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

Hainan Haiyao Co  vs.  Hefei Metalforming Mach

Hainan Haiyao

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hefei Metalforming Mach

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Hainan Haiyao and Hefei Metalforming

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

The idea behind Hainan Haiyao Co and Hefei Metalforming Mach 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 Transaction History module to view history of all your transactions and understand their impact on performance.