Correlation Between Hengkang Medical and Guangdong Jinming

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

Diversification Opportunities for Hengkang Medical and Guangdong Jinming

0.62

Correlation Coefficient

Hengkang Medical  Guangdong Jinming

Poor diversification

The 3 months correlation between Hengkang and Guangdong is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Hengkang Medical Group and Guangdong Jinming Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Jinming 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 Guangdong Jinming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Jinming has no effect on the direction of Hengkang Medical i.e., Hengkang Medical and Guangdong Jinming go up and down completely randomly.

Pair Corralation between Hengkang Medical and Guangdong Jinming

Assuming the 90 days trading horizon Hengkang Medical Group is expected to under-perform the Guangdong Jinming. In addition to that, Hengkang Medical is 1.6 times more volatile than Guangdong Jinming Machinery. It trades about -0.11 of its total potential returns per unit of risk. Guangdong Jinming Machinery is currently generating about -0.08 per unit of volatility. If you would invest  585.00  in Guangdong Jinming Machinery on October 25, 2024 and sell it today you would lose (30.00) from holding Guangdong Jinming Machinery or give up 5.13% of portfolio value over 90 days.

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

Hengkang Medical Group  vs.  Guangdong Jinming Machinery

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.

Guangdong Jinming

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Hengkang Medical and Guangdong Jinming

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

The idea behind Hengkang Medical Group and Guangdong Jinming Machinery 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.