Correlation Between Hunan Nanling and Hwabao WP

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

Diversification Opportunities for Hunan Nanling and Hwabao WP

0.3

Correlation Coefficient

Hunan Nanling  Hwabao WP

Weak diversification

The 3 months correlation between Hunan and Hwabao is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Nanling Industrial and Hwabao WP CSI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hwabao WP CSI 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 Hwabao WP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hwabao WP CSI has no effect on the direction of Hunan Nanling i.e., Hunan Nanling and Hwabao WP go up and down completely randomly.

Pair Corralation between Hunan Nanling and Hwabao WP

Assuming the 90 days trading horizon Hunan Nanling is expected to generate 5.89 times less return on investment than Hwabao WP. In addition to that, Hunan Nanling is 1.11 times more volatile than Hwabao WP CSI. It trades about 0.01 of its total potential returns per unit of risk. Hwabao WP CSI is currently generating about 0.07 per unit of volatility. If you would invest  106.00  in Hwabao WP CSI on October 7, 2024 and sell it today you would earn a total of  18.00  from holding Hwabao WP CSI or generate 16.98% 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.  Hwabao WP CSI

Hunan Nanling Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hunan Nanling Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Hwabao WP CSI

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Hunan Nanling and Hwabao WP

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

The idea behind Hunan Nanling Industrial and Hwabao WP CSI 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.