Correlation Between Sichuan Yahua and Hainan Haiqi

Can any of the company-specific risk be diversified away by investing in both Sichuan Yahua and Hainan Haiqi 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 Sichuan Yahua and Hainan Haiqi into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sichuan Yahua Industrial and Hainan Haiqi Transportation, you can compare the effects of market volatilities on Sichuan Yahua and Hainan Haiqi 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 Sichuan Yahua with a short position of Hainan Haiqi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Yahua and Hainan Haiqi.

Diversification Opportunities for Sichuan Yahua and Hainan Haiqi

0.89

Correlation Coefficient

Sichuan Yahua  Hainan Haiqi

Very poor diversification

The 3 months correlation between Sichuan and Hainan is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Yahua Industrial and Hainan Haiqi Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Haiqi Transpo and Sichuan Yahua 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 Sichuan Yahua Industrial are associated (or correlated) with Hainan Haiqi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Haiqi Transpo has no effect on the direction of Sichuan Yahua i.e., Sichuan Yahua and Hainan Haiqi go up and down completely randomly.

Pair Corralation between Sichuan Yahua and Hainan Haiqi

Assuming the 90 days trading horizon Sichuan Yahua Industrial is expected to generate 0.83 times more return on investment than Hainan Haiqi. However, Sichuan Yahua Industrial is 1.2 times less risky than Hainan Haiqi. It trades about 0.11 of its potential returns per unit of risk. Hainan Haiqi Transportation is currently generating about 0.05 per unit of risk. If you would invest  1,192  in Sichuan Yahua Industrial on September 22, 2024 and sell it today you would earn a total of  72.00  from holding Sichuan Yahua Industrial or generate 6.04% return on investment over 90 days.

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

Sichuan Yahua Industrial  vs.  Hainan Haiqi Transportation

Sichuan Yahua Industrial

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Yahua Industrial are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Yahua sustained solid returns over the last few months and may actually be approaching a breakup point.

Hainan Haiqi Transpo

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Sichuan Yahua and Hainan Haiqi

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

The idea behind Sichuan Yahua Industrial and Hainan Haiqi Transportation 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.