Correlation Between Guangzhou Haige and Hengdian Entertainment

Can any of the company-specific risk be diversified away by investing in both Guangzhou Haige and Hengdian Entertainment 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 Hengdian Entertainment 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 Hengdian Entertainment Co, you can compare the effects of market volatilities on Guangzhou Haige and Hengdian Entertainment 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 Hengdian Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Haige and Hengdian Entertainment.

Diversification Opportunities for Guangzhou Haige and Hengdian Entertainment

0.85

Correlation Coefficient

Guangzhou Haige  Hengdian Entertainment

Very poor diversification

The 3 months correlation between Guangzhou and Hengdian is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Haige Communications and Hengdian Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengdian Entertainment 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 Hengdian Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengdian Entertainment has no effect on the direction of Guangzhou Haige i.e., Guangzhou Haige and Hengdian Entertainment go up and down completely randomly.

Pair Corralation between Guangzhou Haige and Hengdian Entertainment

Assuming the 90 days trading horizon Guangzhou Haige Communications is expected to generate 0.84 times more return on investment than Hengdian Entertainment. However, Guangzhou Haige Communications is 1.19 times less risky than Hengdian Entertainment. It trades about 0.04 of its potential returns per unit of risk. Hengdian Entertainment Co is currently generating about 0.02 per unit of risk. If you would invest  812.00  in Guangzhou Haige Communications on September 21, 2024 and sell it today you would earn a total of  385.00  from holding Guangzhou Haige Communications or generate 47.41% return on investment over 90 days.

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

Guangzhou Haige Communications  vs.  Hengdian Entertainment Co

Guangzhou Haige Comm

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Haige Communications are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Haige sustained solid returns over the last few months and may actually be approaching a breakup point.

Hengdian Entertainment

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hengdian Entertainment Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengdian Entertainment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Haige and Hengdian Entertainment

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

The idea behind Guangzhou Haige Communications and Hengdian Entertainment Co 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.