Correlation Between Hubeiyichang Transportation and Longjian Road

Can any of the company-specific risk be diversified away by investing in both Hubeiyichang Transportation and Longjian Road 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 Hubeiyichang Transportation and Longjian Road into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hubeiyichang Transportation Group and Longjian Road Bridge, you can compare the effects of market volatilities on Hubeiyichang Transportation and Longjian Road 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 Hubeiyichang Transportation with a short position of Longjian Road. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubeiyichang Transportation and Longjian Road.

Diversification Opportunities for Hubeiyichang Transportation and Longjian Road

0.78

Correlation Coefficient

Hubeiyichang Transportation  Longjian Road

Poor diversification

The 3 months correlation between Hubeiyichang and Longjian is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Hubeiyichang Transportation Gr and Longjian Road Bridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longjian Road Bridge and Hubeiyichang Transportation 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 Hubeiyichang Transportation Group are associated (or correlated) with Longjian Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longjian Road Bridge has no effect on the direction of Hubeiyichang Transportation i.e., Hubeiyichang Transportation and Longjian Road go up and down completely randomly.

Pair Corralation between Hubeiyichang Transportation and Longjian Road

Assuming the 90 days trading horizon Hubeiyichang Transportation Group is expected to generate 0.71 times more return on investment than Longjian Road. However, Hubeiyichang Transportation Group is 1.42 times less risky than Longjian Road. It trades about 0.06 of its potential returns per unit of risk. Longjian Road Bridge is currently generating about -0.05 per unit of risk. If you would invest  509.00  in Hubeiyichang Transportation Group on December 28, 2024 and sell it today you would earn a total of  20.00  from holding Hubeiyichang Transportation Group or generate 3.93% return on investment over 90 days.

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

Hubeiyichang Transportation Gr  vs.  Longjian Road Bridge

Hubeiyichang Transportation

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hubeiyichang Transportation Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hubeiyichang Transportation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Longjian Road Bridge

Risk-Adjusted Performance

Very Weak

Over the last 90 days Longjian Road Bridge has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Longjian Road is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hubeiyichang Transportation and Longjian Road

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

The idea behind Hubeiyichang Transportation Group and Longjian Road Bridge 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.