Correlation Between Hunan Nanling and Guangdong Tianhe

Can any of the company-specific risk be diversified away by investing in both Hunan Nanling and Guangdong Tianhe 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 Guangdong Tianhe 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 Guangdong Tianhe Agricultural, you can compare the effects of market volatilities on Hunan Nanling and Guangdong Tianhe 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 Guangdong Tianhe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hunan Nanling and Guangdong Tianhe.

Diversification Opportunities for Hunan Nanling and Guangdong Tianhe

0.31

Correlation Coefficient

Hunan Nanling  Guangdong Tianhe

Weak diversification

The 3 months correlation between Hunan and Guangdong is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Nanling Industrial and Guangdong Tianhe Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Tianhe Agr 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 Guangdong Tianhe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Tianhe Agr has no effect on the direction of Hunan Nanling i.e., Hunan Nanling and Guangdong Tianhe go up and down completely randomly.

Pair Corralation between Hunan Nanling and Guangdong Tianhe

Assuming the 90 days trading horizon Hunan Nanling is expected to generate 2.83 times less return on investment than Guangdong Tianhe. But when comparing it to its historical volatility, Hunan Nanling Industrial is 2.44 times less risky than Guangdong Tianhe. It trades about 0.17 of its potential returns per unit of risk. Guangdong Tianhe Agricultural is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  620.00  in Guangdong Tianhe Agricultural on September 23, 2024 and sell it today you would earn a total of  120.00  from holding Guangdong Tianhe Agricultural or generate 19.35% return on investment over 90 days.

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

Hunan Nanling Industrial  vs.  Guangdong Tianhe Agricultural

Hunan Nanling Industrial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Nanling Industrial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Nanling sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangdong Tianhe Agr

Risk-Adjusted Performance

13 of 100

Solid

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

Pair Trading with Hunan Nanling and Guangdong Tianhe

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

The idea behind Hunan Nanling Industrial and Guangdong Tianhe Agricultural 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.