Correlation Between Tianshui Huatian and Hengdian Entertainment

Can any of the company-specific risk be diversified away by investing in both Tianshui Huatian and Hengdian Entertainment 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 Tianshui Huatian and Hengdian Entertainment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tianshui Huatian Technology and Hengdian Entertainment Co, you can compare the effects of market volatilities on Tianshui Huatian and Hengdian Entertainment 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 Tianshui Huatian with a short position of Hengdian Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tianshui Huatian and Hengdian Entertainment.

Diversification Opportunities for Tianshui Huatian and Hengdian Entertainment

0.72

Correlation Coefficient

Tianshui Huatian  Hengdian Entertainment

Poor diversification

The 3 months correlation between Tianshui and Hengdian is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Tianshui Huatian Technology and Hengdian Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengdian Entertainment and Tianshui Huatian 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 Tianshui Huatian Technology are associated (or correlated) with Hengdian Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengdian Entertainment has no effect on the direction of Tianshui Huatian i.e., Tianshui Huatian and Hengdian Entertainment go up and down completely randomly.

Pair Corralation between Tianshui Huatian and Hengdian Entertainment

Assuming the 90 days trading horizon Tianshui Huatian Technology is expected to under-perform the Hengdian Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, Tianshui Huatian Technology is 1.82 times less risky than Hengdian Entertainment. The stock trades about -0.11 of its potential returns per unit of risk. The Hengdian Entertainment Co is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,551  in Hengdian Entertainment Co on December 27, 2024 and sell it today you would lose (234.00) from holding Hengdian Entertainment Co or give up 15.09% of portfolio value over 90 days.

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

Tianshui Huatian Technology  vs.  Hengdian Entertainment Co

Tianshui Huatian Tec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tianshui Huatian Technology 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Hengdian Entertainment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hengdian Entertainment Co 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tianshui Huatian and Hengdian Entertainment

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

The idea behind Tianshui Huatian Technology and Hengdian Entertainment Co 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.