Correlation Between Shandong Longda and Huizhou Speed

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

By analyzing existing cross correlation between Shandong Longda Meat and Huizhou Speed Wireless, you can compare the effects of market volatilities on Shandong Longda and Huizhou Speed 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 Shandong Longda with a short position of Huizhou Speed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Longda and Huizhou Speed.

Diversification Opportunities for Shandong Longda and Huizhou Speed

-0.23

Correlation Coefficient

Shandong Longda  Huizhou Speed

Very good diversification

The 3 months correlation between Shandong and Huizhou is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Longda Meat and Huizhou Speed Wireless in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huizhou Speed Wireless and Shandong Longda 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 Shandong Longda Meat are associated (or correlated) with Huizhou Speed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huizhou Speed Wireless has no effect on the direction of Shandong Longda i.e., Shandong Longda and Huizhou Speed go up and down completely randomly.

Pair Corralation between Shandong Longda and Huizhou Speed

Assuming the 90 days trading horizon Shandong Longda is expected to generate 17.12 times less return on investment than Huizhou Speed. But when comparing it to its historical volatility, Shandong Longda Meat is 2.42 times less risky than Huizhou Speed. It trades about 0.0 of its potential returns per unit of risk. Huizhou Speed Wireless is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,299  in Huizhou Speed Wireless on October 12, 2024 and sell it today you would lose (36.00) from holding Huizhou Speed Wireless or give up 2.77% of portfolio value over 90 days.

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

Shandong Longda Meat  vs.  Huizhou Speed Wireless

Shandong Longda Meat

Risk-Adjusted Performance

0 of 100

Very Weak

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

Huizhou Speed Wireless

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Huizhou Speed Wireless are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Huizhou Speed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shandong Longda and Huizhou Speed

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

The idea behind Shandong Longda Meat and Huizhou Speed Wireless 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.