Correlation Between Hengli Industrial and Jiangsu Xinning

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

Diversification Opportunities for Hengli Industrial and Jiangsu Xinning

0.81

Correlation Coefficient

Hengli Industrial  Jiangsu Xinning

Very poor diversification

The 3 months correlation between Hengli and Jiangsu is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Industrial Development and Jiangsu Xinning Modern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Xinning Modern 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 Jiangsu Xinning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Xinning Modern has no effect on the direction of Hengli Industrial i.e., Hengli Industrial and Jiangsu Xinning go up and down completely randomly.

Pair Corralation between Hengli Industrial and Jiangsu Xinning

Assuming the 90 days trading horizon Hengli Industrial Development is expected to generate 0.93 times more return on investment than Jiangsu Xinning. However, Hengli Industrial Development is 1.07 times less risky than Jiangsu Xinning. It trades about 0.01 of its potential returns per unit of risk. Jiangsu Xinning Modern is currently generating about -0.08 per unit of risk. If you would invest  204.00  in Hengli Industrial Development on October 7, 2024 and sell it today you would lose (3.00) from holding Hengli Industrial Development or give up 1.47% of portfolio value over 90 days.

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

Hengli Industrial Development  vs.  Jiangsu Xinning Modern

Hengli Industrial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hengli Industrial Development are ranked lower than 8 (%) 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.

Jiangsu Xinning Modern

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangsu Xinning Modern are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangsu Xinning may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Hengli Industrial and Jiangsu Xinning

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

The idea behind Hengli Industrial Development and Jiangsu Xinning Modern 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..