Correlation Between Hunan Nanling and Guangzhou Haige

Can any of the company-specific risk be diversified away by investing in both Hunan Nanling and Guangzhou Haige 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 Hunan Nanling and Guangzhou Haige into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hunan Nanling Industrial and Guangzhou Haige Communications, you can compare the effects of market volatilities on Hunan Nanling and Guangzhou Haige 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 Hunan Nanling with a short position of Guangzhou Haige. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hunan Nanling and Guangzhou Haige.

Diversification Opportunities for Hunan Nanling and Guangzhou Haige

0.77

Correlation Coefficient

Hunan Nanling  Guangzhou Haige

Poor diversification

The 3 months correlation between Hunan and Guangzhou is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Nanling Industrial and Guangzhou Haige Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Haige Comm and Hunan Nanling 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 Hunan Nanling Industrial are associated (or correlated) with Guangzhou Haige. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Haige Comm has no effect on the direction of Hunan Nanling i.e., Hunan Nanling and Guangzhou Haige go up and down completely randomly.

Pair Corralation between Hunan Nanling and Guangzhou Haige

Assuming the 90 days trading horizon Hunan Nanling is expected to generate 6.0 times less return on investment than Guangzhou Haige. But when comparing it to its historical volatility, Hunan Nanling Industrial is 1.05 times less risky than Guangzhou Haige. It trades about 0.01 of its potential returns per unit of risk. Guangzhou Haige Communications is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  823.00  in Guangzhou Haige Communications on September 3, 2024 and sell it today you would earn a total of  457.00  from holding Guangzhou Haige Communications or generate 55.53% return on investment over 90 days.

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

Hunan Nanling Industrial  vs.  Guangzhou Haige Communications

Hunan Nanling Industrial

Risk-Adjusted Performance

1 of 100

Weak

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

Guangzhou Haige Comm

Risk-Adjusted Performance

16 of 100

Solid

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

Pair Trading with Hunan Nanling and Guangzhou Haige

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

The idea behind Hunan Nanling Industrial and Guangzhou Haige Communications 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.