Correlation Between HeNan Splendor and Wuhan Xianglong

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

Diversification Opportunities for HeNan Splendor and Wuhan Xianglong

0.52

Correlation Coefficient

HeNan Splendor  Wuhan Xianglong

Very weak diversification

The 3 months correlation between HeNan and Wuhan is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding HeNan Splendor Science and Wuhan Xianglong Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wuhan Xianglong Power 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 Wuhan Xianglong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wuhan Xianglong Power has no effect on the direction of HeNan Splendor i.e., HeNan Splendor and Wuhan Xianglong go up and down completely randomly.

Pair Corralation between HeNan Splendor and Wuhan Xianglong

Assuming the 90 days trading horizon HeNan Splendor is expected to generate 1.95 times less return on investment than Wuhan Xianglong. But when comparing it to its historical volatility, HeNan Splendor Science is 1.42 times less risky than Wuhan Xianglong. It trades about 0.19 of its potential returns per unit of risk. Wuhan Xianglong Power is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  625.00  in Wuhan Xianglong Power on August 31, 2024 and sell it today you would earn a total of  574.00  from holding Wuhan Xianglong Power or generate 91.84% return on investment over 90 days.

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

HeNan Splendor Science  vs.  Wuhan Xianglong Power

HeNan Splendor Science

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HeNan Splendor Science are ranked lower than 14 (%) 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.

Wuhan Xianglong Power

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wuhan Xianglong Power are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuhan Xianglong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HeNan Splendor and Wuhan Xianglong

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

The idea behind HeNan Splendor Science and Wuhan Xianglong Power 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.