Correlation Between HeNan Splendor and Anhui Tongguan

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

Diversification Opportunities for HeNan Splendor and Anhui Tongguan

0.31

Correlation Coefficient

HeNan Splendor  Anhui Tongguan

Weak diversification

The 3 months correlation between HeNan and Anhui is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding HeNan Splendor Science and Anhui Tongguan Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Tongguan Copper 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 Anhui Tongguan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Tongguan Copper has no effect on the direction of HeNan Splendor i.e., HeNan Splendor and Anhui Tongguan go up and down completely randomly.

Pair Corralation between HeNan Splendor and Anhui Tongguan

Assuming the 90 days trading horizon HeNan Splendor Science is expected to under-perform the Anhui Tongguan. But the stock apears to be less risky and, when comparing its historical volatility, HeNan Splendor Science is 1.13 times less risky than Anhui Tongguan. The stock trades about -0.32 of its potential returns per unit of risk. The Anhui Tongguan Copper is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,126  in Anhui Tongguan Copper on October 12, 2024 and sell it today you would lose (60.00) from holding Anhui Tongguan Copper or give up 5.33% of portfolio value over 90 days.

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

HeNan Splendor Science  vs.  Anhui Tongguan Copper

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.

Anhui Tongguan Copper

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Tongguan Copper are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Anhui Tongguan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HeNan Splendor and Anhui Tongguan

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

The idea behind HeNan Splendor Science and Anhui Tongguan Copper 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.