Correlation Between Hengkang Medical and Anhui Fuhuang

Can any of the company-specific risk be diversified away by investing in both Hengkang Medical and Anhui Fuhuang 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 Hengkang Medical and Anhui Fuhuang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hengkang Medical Group and Anhui Fuhuang Steel, you can compare the effects of market volatilities on Hengkang Medical and Anhui Fuhuang 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 Hengkang Medical with a short position of Anhui Fuhuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hengkang Medical and Anhui Fuhuang.

Diversification Opportunities for Hengkang Medical and Anhui Fuhuang

0.6

Correlation Coefficient

Hengkang Medical  Anhui Fuhuang

Poor diversification

The 3 months correlation between Hengkang and Anhui is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Hengkang Medical Group and Anhui Fuhuang Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Fuhuang Steel and Hengkang Medical 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 Hengkang Medical Group are associated (or correlated) with Anhui Fuhuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Fuhuang Steel has no effect on the direction of Hengkang Medical i.e., Hengkang Medical and Anhui Fuhuang go up and down completely randomly.

Pair Corralation between Hengkang Medical and Anhui Fuhuang

Assuming the 90 days trading horizon Hengkang Medical is expected to generate 3.95 times less return on investment than Anhui Fuhuang. But when comparing it to its historical volatility, Hengkang Medical Group is 1.04 times less risky than Anhui Fuhuang. It trades about 0.01 of its potential returns per unit of risk. Anhui Fuhuang Steel is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  450.00  in Anhui Fuhuang Steel on October 25, 2024 and sell it today you would earn a total of  128.00  from holding Anhui Fuhuang Steel or generate 28.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.5%
Values	Daily Returns

Hengkang Medical Group  vs.  Anhui Fuhuang Steel

Hengkang Medical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Anhui Fuhuang Steel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Fuhuang Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Fuhuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hengkang Medical and Anhui Fuhuang

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

The idea behind Hengkang Medical Group and Anhui Fuhuang Steel 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.