Correlation Between HeNan Splendor and Sichuan Tianqi

Can any of the company-specific risk be diversified away by investing in both HeNan Splendor and Sichuan Tianqi 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 HeNan Splendor and Sichuan Tianqi into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HeNan Splendor Science and Sichuan Tianqi Lithium, you can compare the effects of market volatilities on HeNan Splendor and Sichuan Tianqi 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 HeNan Splendor with a short position of Sichuan Tianqi. Check out your portfolio center. Please also check ongoing floating volatility patterns of HeNan Splendor and Sichuan Tianqi.

Diversification Opportunities for HeNan Splendor and Sichuan Tianqi

0.01

Correlation Coefficient

HeNan Splendor  Sichuan Tianqi

Significant diversification

The 3 months correlation between HeNan and Sichuan is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding HeNan Splendor Science and Sichuan Tianqi Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Tianqi Lithium and HeNan Splendor 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 HeNan Splendor Science are associated (or correlated) with Sichuan Tianqi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Tianqi Lithium has no effect on the direction of HeNan Splendor i.e., HeNan Splendor and Sichuan Tianqi go up and down completely randomly.

Pair Corralation between HeNan Splendor and Sichuan Tianqi

Assuming the 90 days trading horizon HeNan Splendor Science is expected to generate 1.38 times more return on investment than Sichuan Tianqi. However, HeNan Splendor is 1.38 times more volatile than Sichuan Tianqi Lithium. It trades about 0.12 of its potential returns per unit of risk. Sichuan Tianqi Lithium is currently generating about -0.06 per unit of risk. If you would invest  981.00  in HeNan Splendor Science on December 25, 2024 and sell it today you would earn a total of  194.00  from holding HeNan Splendor Science or generate 19.78% return on investment over 90 days.

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

HeNan Splendor Science  vs.  Sichuan Tianqi Lithium

HeNan Splendor Science

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HeNan Splendor Science are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HeNan Splendor sustained solid returns over the last few months and may actually be approaching a breakup point.

Sichuan Tianqi Lithium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sichuan Tianqi Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with HeNan Splendor and Sichuan Tianqi

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

The idea behind HeNan Splendor Science and Sichuan Tianqi Lithium 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.