Correlation Between Hunan Mendale and Shandong Homey

Can any of the company-specific risk be diversified away by investing in both Hunan Mendale and Shandong Homey 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 Shandong Homey 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 Shandong Homey Aquatic, you can compare the effects of market volatilities on Hunan Mendale and Shandong Homey 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 Shandong Homey. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hunan Mendale and Shandong Homey.

Diversification Opportunities for Hunan Mendale and Shandong Homey

0.57

Correlation Coefficient

Hunan Mendale  Shandong Homey

Very weak diversification

The 3 months correlation between Hunan and Shandong is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Mendale Hometextile and Shandong Homey Aquatic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Homey Aquatic 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 Shandong Homey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Homey Aquatic has no effect on the direction of Hunan Mendale i.e., Hunan Mendale and Shandong Homey go up and down completely randomly.

Pair Corralation between Hunan Mendale and Shandong Homey

Assuming the 90 days trading horizon Hunan Mendale Hometextile is expected to generate 1.03 times more return on investment than Shandong Homey. However, Hunan Mendale is 1.03 times more volatile than Shandong Homey Aquatic. It trades about 0.18 of its potential returns per unit of risk. Shandong Homey Aquatic is currently generating about -0.04 per unit of risk. If you would invest  263.00  in Hunan Mendale Hometextile on October 6, 2024 and sell it today you would earn a total of  92.00  from holding Hunan Mendale Hometextile or generate 34.98% return on investment over 90 days.

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

Hunan Mendale Hometextile  vs.  Shandong Homey Aquatic

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.

Shandong Homey Aquatic

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Homey Aquatic are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Homey may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Hunan Mendale and Shandong Homey

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

The idea behind Hunan Mendale Hometextile and Shandong Homey Aquatic 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.