Correlation Between HeNan Splendor and Guangdong Tianhe

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

Diversification Opportunities for HeNan Splendor and Guangdong Tianhe

0.73

Correlation Coefficient

HeNan Splendor  Guangdong Tianhe

Poor diversification

The 3 months correlation between HeNan and Guangdong is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding HeNan Splendor Science and Guangdong Tianhe Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Tianhe Agr 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 Guangdong Tianhe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Tianhe Agr has no effect on the direction of HeNan Splendor i.e., HeNan Splendor and Guangdong Tianhe go up and down completely randomly.

Pair Corralation between HeNan Splendor and Guangdong Tianhe

Assuming the 90 days trading horizon HeNan Splendor is expected to generate 1.29 times less return on investment than Guangdong Tianhe. In addition to that, HeNan Splendor is 1.11 times more volatile than Guangdong Tianhe Agricultural. It trades about 0.03 of its total potential returns per unit of risk. Guangdong Tianhe Agricultural is currently generating about 0.04 per unit of volatility. If you would invest  575.00  in Guangdong Tianhe Agricultural on October 22, 2024 and sell it today you would earn a total of  32.00  from holding Guangdong Tianhe Agricultural or generate 5.57% return on investment over 90 days.

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

HeNan Splendor Science  vs.  Guangdong Tianhe Agricultural

HeNan Splendor Science

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HeNan Splendor Science are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HeNan Splendor may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Guangdong Tianhe Agr

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Tianhe Agricultural are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Tianhe may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with HeNan Splendor and Guangdong Tianhe

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

The idea behind HeNan Splendor Science and Guangdong Tianhe Agricultural 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.