Correlation Between Focus Media and Huaibei Mining

Can any of the company-specific risk be diversified away by investing in both Focus Media and Huaibei Mining 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 Focus Media and Huaibei Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Focus Media Information and Huaibei Mining Holdings, you can compare the effects of market volatilities on Focus Media and Huaibei Mining 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 Focus Media with a short position of Huaibei Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Focus Media and Huaibei Mining.

Diversification Opportunities for Focus Media and Huaibei Mining

0.58

Correlation Coefficient

Focus Media  Huaibei Mining

Very weak diversification

The 3 months correlation between Focus and Huaibei is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Focus Media Information and Huaibei Mining Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaibei Mining Holdings and Focus Media 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 Focus Media Information are associated (or correlated) with Huaibei Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaibei Mining Holdings has no effect on the direction of Focus Media i.e., Focus Media and Huaibei Mining go up and down completely randomly.

Pair Corralation between Focus Media and Huaibei Mining

Assuming the 90 days trading horizon Focus Media Information is expected to generate 0.85 times more return on investment than Huaibei Mining. However, Focus Media Information is 1.17 times less risky than Huaibei Mining. It trades about -0.12 of its potential returns per unit of risk. Huaibei Mining Holdings is currently generating about -0.22 per unit of risk. If you would invest  718.00  in Focus Media Information on September 21, 2024 and sell it today you would lose (26.00) from holding Focus Media Information or give up 3.62% of portfolio value over 90 days.

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

Focus Media Information  vs.  Huaibei Mining Holdings

Focus Media Information

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Focus Media Information are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Focus Media sustained solid returns over the last few months and may actually be approaching a breakup point.

Huaibei Mining Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Focus Media and Huaibei Mining

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

The idea behind Focus Media Information and Huaibei Mining Holdings 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.