Correlation Between Zhejiang Construction and Hunan TV

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Can any of the company-specific risk be diversified away by investing in both Zhejiang Construction and Hunan TV 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 Zhejiang Construction and Hunan TV into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Zhejiang Construction Investment and Hunan TV Broadcast, you can compare the effects of market volatilities on Zhejiang Construction and Hunan TV 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 Zhejiang Construction with a short position of Hunan TV. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Construction and Hunan TV.

Diversification Opportunities for Zhejiang Construction and Hunan TV

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Zhejiang and Hunan is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Construction Investme and Hunan TV Broadcast in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunan TV Broadcast and Zhejiang Construction 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 Zhejiang Construction Investment are associated (or correlated) with Hunan TV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunan TV Broadcast has no effect on the direction of Zhejiang Construction i.e., Zhejiang Construction and Hunan TV go up and down completely randomly.

Pair Corralation between Zhejiang Construction and Hunan TV

Assuming the 90 days trading horizon Zhejiang Construction is expected to generate 1.5 times less return on investment than Hunan TV. But when comparing it to its historical volatility, Zhejiang Construction Investment is 1.21 times less risky than Hunan TV. It trades about 0.19 of its potential returns per unit of risk. Hunan TV Broadcast is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  474.00  in Hunan TV Broadcast on September 13, 2024 and sell it today you would earn a total of  387.00  from holding Hunan TV Broadcast or generate 81.65% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy98.25%
ValuesDaily Returns

Zhejiang Construction Investme  vs.  Hunan TV Broadcast

 Performance 
       Timeline  
Zhejiang Construction 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Construction Investment are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Construction sustained solid returns over the last few months and may actually be approaching a breakup point.
Hunan TV Broadcast 

Risk-Adjusted Performance

18 of 100

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

Zhejiang Construction and Hunan TV Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Zhejiang Construction and Hunan TV

The main advantage of trading using opposite Zhejiang Construction and Hunan TV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zhejiang Construction position performs unexpectedly, Hunan TV 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 Hunan TV will offset losses from the drop in Hunan TV's long position.
The idea behind Zhejiang Construction Investment and Hunan TV Broadcast 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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