Correlation Between Hunan Mendale and Fujian Nanwang

Can any of the company-specific risk be diversified away by investing in both Hunan Mendale and Fujian Nanwang 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 Hunan Mendale and Fujian Nanwang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hunan Mendale Hometextile and Fujian Nanwang Environment, you can compare the effects of market volatilities on Hunan Mendale and Fujian Nanwang 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 Hunan Mendale with a short position of Fujian Nanwang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hunan Mendale and Fujian Nanwang.

Diversification Opportunities for Hunan Mendale and Fujian Nanwang

0.82

Correlation Coefficient

Hunan Mendale  Fujian Nanwang

Very poor diversification

The 3 months correlation between Hunan and Fujian is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Mendale Hometextile and Fujian Nanwang Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fujian Nanwang Envir and Hunan Mendale 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 Hunan Mendale Hometextile are associated (or correlated) with Fujian Nanwang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fujian Nanwang Envir has no effect on the direction of Hunan Mendale i.e., Hunan Mendale and Fujian Nanwang go up and down completely randomly.

Pair Corralation between Hunan Mendale and Fujian Nanwang

Assuming the 90 days trading horizon Hunan Mendale Hometextile is expected to generate 2.0 times more return on investment than Fujian Nanwang. However, Hunan Mendale is 2.0 times more volatile than Fujian Nanwang Environment. It trades about 0.14 of its potential returns per unit of risk. Fujian Nanwang Environment is currently generating about 0.04 per unit of risk. If you would invest  255.00  in Hunan Mendale Hometextile on October 7, 2024 and sell it today you would earn a total of  100.00  from holding Hunan Mendale Hometextile or generate 39.22% return on investment over 90 days.

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

Hunan Mendale Hometextile  vs.  Fujian Nanwang Environment

Hunan Mendale Hometextile

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Mendale Hometextile are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Mendale sustained solid returns over the last few months and may actually be approaching a breakup point.

Fujian Nanwang Envir

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fujian Nanwang Environment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Fujian Nanwang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hunan Mendale and Fujian Nanwang

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

The idea behind Hunan Mendale Hometextile and Fujian Nanwang Environment 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.