Correlation Between ChengDu Hi and Hubei Xingfa

Can any of the company-specific risk be diversified away by investing in both ChengDu Hi and Hubei Xingfa 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 ChengDu Hi and Hubei Xingfa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ChengDu Hi Tech Development and Hubei Xingfa Chemicals, you can compare the effects of market volatilities on ChengDu Hi and Hubei Xingfa 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 ChengDu Hi with a short position of Hubei Xingfa. Check out your portfolio center. Please also check ongoing floating volatility patterns of ChengDu Hi and Hubei Xingfa.

Diversification Opportunities for ChengDu Hi and Hubei Xingfa

0.39

Correlation Coefficient

ChengDu Hi  Hubei Xingfa

Weak diversification

The 3 months correlation between ChengDu and Hubei is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding ChengDu Hi Tech Development and Hubei Xingfa Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Xingfa Chemicals and ChengDu Hi 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 ChengDu Hi Tech Development are associated (or correlated) with Hubei Xingfa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Xingfa Chemicals has no effect on the direction of ChengDu Hi i.e., ChengDu Hi and Hubei Xingfa go up and down completely randomly.

Pair Corralation between ChengDu Hi and Hubei Xingfa

Assuming the 90 days trading horizon ChengDu Hi is expected to generate 1.04 times less return on investment than Hubei Xingfa. In addition to that, ChengDu Hi is 1.95 times more volatile than Hubei Xingfa Chemicals. It trades about 0.01 of its total potential returns per unit of risk. Hubei Xingfa Chemicals is currently generating about 0.02 per unit of volatility. If you would invest  2,045  in Hubei Xingfa Chemicals on October 9, 2024 and sell it today you would earn a total of  115.00  from holding Hubei Xingfa Chemicals or generate 5.62% return on investment over 90 days.

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

ChengDu Hi Tech Development  vs.  Hubei Xingfa Chemicals

ChengDu Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hubei Xingfa Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with ChengDu Hi and Hubei Xingfa

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

The idea behind ChengDu Hi Tech Development and Hubei Xingfa Chemicals 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.