Correlation Between HeNan Splendor and Anhui Transport

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

Diversification Opportunities for HeNan Splendor and Anhui Transport

0.81

Correlation Coefficient

HeNan Splendor  Anhui Transport

Very poor diversification

The 3 months correlation between HeNan and Anhui is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding HeNan Splendor Science and Anhui Transport Consulting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Transport Cons 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 Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Transport Cons has no effect on the direction of HeNan Splendor i.e., HeNan Splendor and Anhui Transport go up and down completely randomly.

Pair Corralation between HeNan Splendor and Anhui Transport

Assuming the 90 days trading horizon HeNan Splendor Science is expected to generate 2.5 times more return on investment than Anhui Transport. However, HeNan Splendor is 2.5 times more volatile than Anhui Transport Consulting. It trades about 0.04 of its potential returns per unit of risk. Anhui Transport Consulting is currently generating about -0.15 per unit of risk. If you would invest  963.00  in HeNan Splendor Science on September 25, 2024 and sell it today you would earn a total of  15.00  from holding HeNan Splendor Science or generate 1.56% return on investment over 90 days.

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

HeNan Splendor Science  vs.  Anhui Transport Consulting

HeNan Splendor Science

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HeNan Splendor Science are ranked lower than 8 (%) 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.

Anhui Transport Cons

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Transport Consulting are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Anhui Transport sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HeNan Splendor and Anhui Transport

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

The idea behind HeNan Splendor Science and Anhui Transport Consulting 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.