Correlation Between Anhui Deli and Shandong Hongchuang

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

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

Diversification Opportunities for Anhui Deli and Shandong Hongchuang

0.46

Correlation Coefficient

Anhui Deli  Shandong Hongchuang

Very weak diversification

The 3 months correlation between Anhui and Shandong is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Anhui Deli Household and Shandong Hongchuang Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hongchuang and Anhui Deli 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 Deli Household are associated (or correlated) with Shandong Hongchuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hongchuang has no effect on the direction of Anhui Deli i.e., Anhui Deli and Shandong Hongchuang go up and down completely randomly.

Pair Corralation between Anhui Deli and Shandong Hongchuang

Assuming the 90 days trading horizon Anhui Deli Household is expected to under-perform the Shandong Hongchuang. But the stock apears to be less risky and, when comparing its historical volatility, Anhui Deli Household is 1.02 times less risky than Shandong Hongchuang. The stock trades about -0.27 of its potential returns per unit of risk. The Shandong Hongchuang Aluminum is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest  686.00  in Shandong Hongchuang Aluminum on September 28, 2024 and sell it today you would earn a total of  211.00  from holding Shandong Hongchuang Aluminum or generate 30.76% return on investment over 90 days.

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

Anhui Deli Household  vs.  Shandong Hongchuang Aluminum

Anhui Deli Household

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Anhui Deli Household has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shandong Hongchuang

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Hongchuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Anhui Deli and Shandong Hongchuang

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

The idea behind Anhui Deli Household and Shandong Hongchuang Aluminum 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..