Correlation Between Ningbo Kangqiang and Hangzhou Guotai

Can any of the company-specific risk be diversified away by investing in both Ningbo Kangqiang and Hangzhou Guotai 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 Ningbo Kangqiang and Hangzhou Guotai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ningbo Kangqiang Electronics and Hangzhou Guotai Environmental, you can compare the effects of market volatilities on Ningbo Kangqiang and Hangzhou Guotai 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 Ningbo Kangqiang with a short position of Hangzhou Guotai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ningbo Kangqiang and Hangzhou Guotai.

Diversification Opportunities for Ningbo Kangqiang and Hangzhou Guotai

0.5

Correlation Coefficient

Ningbo Kangqiang  Hangzhou Guotai

Very weak diversification

The 3 months correlation between Ningbo and Hangzhou is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Kangqiang Electronics and Hangzhou Guotai Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Guotai Envi and Ningbo Kangqiang 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 Ningbo Kangqiang Electronics are associated (or correlated) with Hangzhou Guotai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Guotai Envi has no effect on the direction of Ningbo Kangqiang i.e., Ningbo Kangqiang and Hangzhou Guotai go up and down completely randomly.

Pair Corralation between Ningbo Kangqiang and Hangzhou Guotai

Assuming the 90 days trading horizon Ningbo Kangqiang Electronics is expected to generate 2.29 times more return on investment than Hangzhou Guotai. However, Ningbo Kangqiang is 2.29 times more volatile than Hangzhou Guotai Environmental. It trades about 0.16 of its potential returns per unit of risk. Hangzhou Guotai Environmental is currently generating about 0.02 per unit of risk. If you would invest  1,506  in Ningbo Kangqiang Electronics on October 11, 2024 and sell it today you would earn a total of  230.00  from holding Ningbo Kangqiang Electronics or generate 15.27% return on investment over 90 days.

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

Ningbo Kangqiang Electronics  vs.  Hangzhou Guotai Environmental

Ningbo Kangqiang Ele

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Kangqiang Electronics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Kangqiang sustained solid returns over the last few months and may actually be approaching a breakup point.

Hangzhou Guotai Envi

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hangzhou Guotai Environmental are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hangzhou Guotai may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Ningbo Kangqiang and Hangzhou Guotai

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

The idea behind Ningbo Kangqiang Electronics and Hangzhou Guotai Environmental 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.