Correlation Between Anhui Huilong and Shandong Homey

Can any of the company-specific risk be diversified away by investing in both Anhui Huilong 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 Anhui Huilong and Shandong Homey into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Anhui Huilong Agricultural and Shandong Homey Aquatic, you can compare the effects of market volatilities on Anhui Huilong 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 Anhui Huilong with a short position of Shandong Homey. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anhui Huilong and Shandong Homey.

Diversification Opportunities for Anhui Huilong and Shandong Homey

0.89

Correlation Coefficient

Anhui Huilong  Shandong Homey

Very poor diversification

The 3 months correlation between Anhui and Shandong is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Huilong Agricultural 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 Anhui Huilong 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 Anhui Huilong Agricultural 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 Anhui Huilong i.e., Anhui Huilong and Shandong Homey go up and down completely randomly.

Pair Corralation between Anhui Huilong and Shandong Homey

Assuming the 90 days trading horizon Anhui Huilong Agricultural is expected to under-perform the Shandong Homey. But the stock apears to be less risky and, when comparing its historical volatility, Anhui Huilong Agricultural is 1.09 times less risky than Shandong Homey. The stock trades about -0.01 of its potential returns per unit of risk. The Shandong Homey Aquatic is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  264.00  in Shandong Homey Aquatic on September 19, 2024 and sell it today you would earn a total of  4.00  from holding Shandong Homey Aquatic or generate 1.52% return on investment over 90 days.

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

Anhui Huilong Agricultural  vs.  Shandong Homey Aquatic

Anhui Huilong Agricu

Risk-Adjusted Performance

13 of 100

Good

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

Shandong Homey Aquatic

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Homey Aquatic are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Homey sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Anhui Huilong and Shandong Homey

The main advantage of trading using opposite Anhui Huilong and Shandong Homey positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Anhui Huilong 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 Anhui Huilong Agricultural 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 Stocks Directory module to find actively traded stocks across global markets.