Correlation Between Shandong Hongchuang and Hubei Yingtong

Can any of the company-specific risk be diversified away by investing in both Shandong Hongchuang and Hubei Yingtong 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 Shandong Hongchuang and Hubei Yingtong into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shandong Hongchuang Aluminum and Hubei Yingtong Telecommunication, you can compare the effects of market volatilities on Shandong Hongchuang and Hubei Yingtong 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 Shandong Hongchuang with a short position of Hubei Yingtong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Hongchuang and Hubei Yingtong.

Diversification Opportunities for Shandong Hongchuang and Hubei Yingtong

0.38

Correlation Coefficient

Shandong Hongchuang  Hubei Yingtong

Weak diversification

The 3 months correlation between Shandong and Hubei is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Hongchuang Aluminum and Hubei Yingtong Telecommunicati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Yingtong Telec and Shandong Hongchuang 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 Shandong Hongchuang Aluminum are associated (or correlated) with Hubei Yingtong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Yingtong Telec has no effect on the direction of Shandong Hongchuang i.e., Shandong Hongchuang and Hubei Yingtong go up and down completely randomly.

Pair Corralation between Shandong Hongchuang and Hubei Yingtong

Assuming the 90 days trading horizon Shandong Hongchuang Aluminum is expected to generate 0.67 times more return on investment than Hubei Yingtong. However, Shandong Hongchuang Aluminum is 1.49 times less risky than Hubei Yingtong. It trades about 0.2 of its potential returns per unit of risk. Hubei Yingtong Telecommunication is currently generating about 0.05 per unit of risk. If you would invest  711.00  in Shandong Hongchuang Aluminum on September 30, 2024 and sell it today you would earn a total of  186.00  from holding Shandong Hongchuang Aluminum or generate 26.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.73%
Values	Daily Returns

Shandong Hongchuang Aluminum  vs.  Hubei Yingtong Telecommunicati

Shandong Hongchuang

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Hongchuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Hubei Yingtong Telec

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Yingtong Telecommunication are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Yingtong may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Shandong Hongchuang and Hubei Yingtong

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

The idea behind Shandong Hongchuang Aluminum and Hubei Yingtong Telecommunication 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.