Correlation Between Hengli Industrial and Shanghai Material

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

Diversification Opportunities for Hengli Industrial and Shanghai Material

0.72

Correlation Coefficient

Hengli Industrial  Shanghai Material

Poor diversification

The 3 months correlation between Hengli and Shanghai is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Industrial Development and Shanghai Material Trading in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Material Trading 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 Shanghai Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Material Trading has no effect on the direction of Hengli Industrial i.e., Hengli Industrial and Shanghai Material go up and down completely randomly.

Pair Corralation between Hengli Industrial and Shanghai Material

Assuming the 90 days trading horizon Hengli Industrial is expected to generate 1.33 times less return on investment than Shanghai Material. But when comparing it to its historical volatility, Hengli Industrial Development is 1.16 times less risky than Shanghai Material. It trades about 0.24 of its potential returns per unit of risk. Shanghai Material Trading is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  954.00  in Shanghai Material Trading on September 4, 2024 and sell it today you would earn a total of  284.00  from holding Shanghai Material Trading or generate 29.77% return on investment over 90 days.

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

Hengli Industrial Development  vs.  Shanghai Material Trading

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.

Shanghai Material Trading

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Material Trading are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Material sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hengli Industrial and Shanghai Material

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

The idea behind Hengli Industrial Development and Shanghai Material Trading 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.