Correlation Between Hengli Industrial and Zhejiang Crystal

Can any of the company-specific risk be diversified away by investing in both Hengli Industrial and Zhejiang Crystal 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 Hengli Industrial and Zhejiang Crystal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hengli Industrial Development and Zhejiang Crystal Optech, you can compare the effects of market volatilities on Hengli Industrial and Zhejiang Crystal 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 Hengli Industrial with a short position of Zhejiang Crystal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hengli Industrial and Zhejiang Crystal.

Diversification Opportunities for Hengli Industrial and Zhejiang Crystal

0.53

Correlation Coefficient

Hengli Industrial  Zhejiang Crystal

Very weak diversification

The 3 months correlation between Hengli and Zhejiang is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Industrial Development and Zhejiang Crystal Optech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Crystal Optech and Hengli Industrial 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 Hengli Industrial Development are associated (or correlated) with Zhejiang Crystal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Crystal Optech has no effect on the direction of Hengli Industrial i.e., Hengli Industrial and Zhejiang Crystal go up and down completely randomly.

Pair Corralation between Hengli Industrial and Zhejiang Crystal

Assuming the 90 days trading horizon Hengli Industrial Development is expected to generate 1.14 times more return on investment than Zhejiang Crystal. However, Hengli Industrial is 1.14 times more volatile than Zhejiang Crystal Optech. It trades about 0.21 of its potential returns per unit of risk. Zhejiang Crystal Optech is currently generating about 0.01 per unit of risk. If you would invest  198.00  in Hengli Industrial Development on December 26, 2024 and sell it today you would earn a total of  89.00  from holding Hengli Industrial Development or generate 44.95% return on investment over 90 days.

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

Hengli Industrial Development  vs.  Zhejiang Crystal Optech

Hengli Industrial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hengli Industrial Development are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengli Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhejiang Crystal Optech

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Crystal Optech are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Zhejiang Crystal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hengli Industrial and Zhejiang Crystal

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

The idea behind Hengli Industrial Development and Zhejiang Crystal Optech 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.