Correlation Between Hengkang Medical and Eastroc Beverage

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

Diversification Opportunities for Hengkang Medical and Eastroc Beverage

0.86

Correlation Coefficient

Hengkang Medical  Eastroc Beverage

Very poor diversification

The 3 months correlation between Hengkang and Eastroc is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Hengkang Medical Group and Eastroc Beverage Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastroc Beverage 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 Eastroc Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastroc Beverage has no effect on the direction of Hengkang Medical i.e., Hengkang Medical and Eastroc Beverage go up and down completely randomly.

Pair Corralation between Hengkang Medical and Eastroc Beverage

Assuming the 90 days trading horizon Hengkang Medical is expected to generate 2.35 times less return on investment than Eastroc Beverage. In addition to that, Hengkang Medical is 1.64 times more volatile than Eastroc Beverage Group. It trades about 0.08 of its total potential returns per unit of risk. Eastroc Beverage Group is currently generating about 0.31 per unit of volatility. If you would invest  21,074  in Eastroc Beverage Group on September 26, 2024 and sell it today you would earn a total of  3,138  from holding Eastroc Beverage Group or generate 14.89% return on investment over 90 days.

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

Hengkang Medical Group  vs.  Eastroc Beverage Group

Hengkang Medical

Risk-Adjusted Performance

11 of 100

Good

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

Eastroc Beverage

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eastroc Beverage Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eastroc Beverage sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hengkang Medical and Eastroc Beverage

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

The idea behind Hengkang Medical Group and Eastroc Beverage Group 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.