Correlation Between Westone Information and Datang HuaYin

Can any of the company-specific risk be diversified away by investing in both Westone Information and Datang HuaYin 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 Westone Information and Datang HuaYin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Westone Information Industry and Datang HuaYin Electric, you can compare the effects of market volatilities on Westone Information and Datang HuaYin 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 Westone Information with a short position of Datang HuaYin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Westone Information and Datang HuaYin.

Diversification Opportunities for Westone Information and Datang HuaYin

0.91

Correlation Coefficient

Westone Information  Datang HuaYin

Almost no diversification

The 3 months correlation between Westone and Datang is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Westone Information Industry and Datang HuaYin Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datang HuaYin Electric and Westone Information 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 Westone Information Industry are associated (or correlated) with Datang HuaYin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datang HuaYin Electric has no effect on the direction of Westone Information i.e., Westone Information and Datang HuaYin go up and down completely randomly.

Pair Corralation between Westone Information and Datang HuaYin

Assuming the 90 days trading horizon Westone Information Industry is expected to under-perform the Datang HuaYin. In addition to that, Westone Information is 1.11 times more volatile than Datang HuaYin Electric. It trades about -0.03 of its total potential returns per unit of risk. Datang HuaYin Electric is currently generating about 0.0 per unit of volatility. If you would invest  414.00  in Datang HuaYin Electric on September 19, 2024 and sell it today you would lose (67.00) from holding Datang HuaYin Electric or give up 16.18% of portfolio value over 90 days.

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

Westone Information Industry  vs.  Datang HuaYin Electric

Westone Information

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westone Information Industry are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Westone Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Datang HuaYin Electric

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Datang HuaYin Electric are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Datang HuaYin sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Westone Information and Datang HuaYin

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

The idea behind Westone Information Industry and Datang HuaYin Electric 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.