Correlation Between Jiangxi Hengda and Hubei Forbon

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

By analyzing existing cross correlation between Jiangxi Hengda Hi Tech and Hubei Forbon Technology, you can compare the effects of market volatilities on Jiangxi Hengda and Hubei Forbon 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 Jiangxi Hengda with a short position of Hubei Forbon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jiangxi Hengda and Hubei Forbon.

Diversification Opportunities for Jiangxi Hengda and Hubei Forbon

0.96

Correlation Coefficient

Jiangxi Hengda  Hubei Forbon

Almost no diversification

The 3 months correlation between Jiangxi and Hubei is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Jiangxi Hengda Hi Tech and Hubei Forbon Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Forbon Technology and Jiangxi Hengda 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 Jiangxi Hengda Hi Tech are associated (or correlated) with Hubei Forbon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Forbon Technology has no effect on the direction of Jiangxi Hengda i.e., Jiangxi Hengda and Hubei Forbon go up and down completely randomly.

Pair Corralation between Jiangxi Hengda and Hubei Forbon

Assuming the 90 days trading horizon Jiangxi Hengda is expected to generate 1.08 times less return on investment than Hubei Forbon. But when comparing it to its historical volatility, Jiangxi Hengda Hi Tech is 1.25 times less risky than Hubei Forbon. It trades about 0.18 of its potential returns per unit of risk. Hubei Forbon Technology is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  646.00  in Hubei Forbon Technology on September 20, 2024 and sell it today you would earn a total of  258.00  from holding Hubei Forbon Technology or generate 39.94% return on investment over 90 days.

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

Jiangxi Hengda Hi Tech  vs.  Hubei Forbon Technology

Jiangxi Hengda Hi

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangxi Hengda Hi Tech are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangxi Hengda sustained solid returns over the last few months and may actually be approaching a breakup point.

Hubei Forbon Technology

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Forbon Technology are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Forbon sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jiangxi Hengda and Hubei Forbon

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

The idea behind Jiangxi Hengda Hi Tech and Hubei Forbon Technology 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.