Correlation Between Guangzhou Haige and Hubei Dinglong

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

By analyzing existing cross correlation between Guangzhou Haige Communications and Hubei Dinglong Chemical, you can compare the effects of market volatilities on Guangzhou Haige and Hubei Dinglong 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 Guangzhou Haige with a short position of Hubei Dinglong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Haige and Hubei Dinglong.

Diversification Opportunities for Guangzhou Haige and Hubei Dinglong

0.63

Correlation Coefficient

Guangzhou Haige  Hubei Dinglong

Poor diversification

The 3 months correlation between Guangzhou and Hubei is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Haige Communications and Hubei Dinglong Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Dinglong Chemical and Guangzhou Haige 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 Guangzhou Haige Communications are associated (or correlated) with Hubei Dinglong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Dinglong Chemical has no effect on the direction of Guangzhou Haige i.e., Guangzhou Haige and Hubei Dinglong go up and down completely randomly.

Pair Corralation between Guangzhou Haige and Hubei Dinglong

Assuming the 90 days trading horizon Guangzhou Haige is expected to generate 3.56 times less return on investment than Hubei Dinglong. In addition to that, Guangzhou Haige is 1.03 times more volatile than Hubei Dinglong Chemical. It trades about 0.01 of its total potential returns per unit of risk. Hubei Dinglong Chemical is currently generating about 0.03 per unit of volatility. If you would invest  2,734  in Hubei Dinglong Chemical on December 26, 2024 and sell it today you would earn a total of  74.00  from holding Hubei Dinglong Chemical or generate 2.71% return on investment over 90 days.

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

Guangzhou Haige Communications  vs.  Hubei Dinglong Chemical

Guangzhou Haige Comm

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangzhou Haige Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Guangzhou Haige is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hubei Dinglong Chemical

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Dinglong Chemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hubei Dinglong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guangzhou Haige and Hubei Dinglong

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

The idea behind Guangzhou Haige Communications and Hubei Dinglong Chemical 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.