Correlation Between Hangzhou Weiguang and CNOOC

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

By analyzing existing cross correlation between Hangzhou Weiguang Electronic and CNOOC Limited, you can compare the effects of market volatilities on Hangzhou Weiguang and CNOOC 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 Hangzhou Weiguang with a short position of CNOOC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hangzhou Weiguang and CNOOC.

Diversification Opportunities for Hangzhou Weiguang and CNOOC

-0.05

Correlation Coefficient

Hangzhou Weiguang  CNOOC

Good diversification

The 3 months correlation between Hangzhou and CNOOC is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Hangzhou Weiguang Electronic and CNOOC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNOOC Limited and Hangzhou Weiguang 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 Hangzhou Weiguang Electronic are associated (or correlated) with CNOOC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNOOC Limited has no effect on the direction of Hangzhou Weiguang i.e., Hangzhou Weiguang and CNOOC go up and down completely randomly.

Pair Corralation between Hangzhou Weiguang and CNOOC

Assuming the 90 days trading horizon Hangzhou Weiguang Electronic is expected to generate 1.76 times more return on investment than CNOOC. However, Hangzhou Weiguang is 1.76 times more volatile than CNOOC Limited. It trades about 0.27 of its potential returns per unit of risk. CNOOC Limited is currently generating about 0.14 per unit of risk. If you would invest  2,280  in Hangzhou Weiguang Electronic on September 24, 2024 and sell it today you would earn a total of  265.00  from holding Hangzhou Weiguang Electronic or generate 11.62% return on investment over 90 days.

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

Hangzhou Weiguang Electronic  vs.  CNOOC Limited

Hangzhou Weiguang

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hangzhou Weiguang Electronic are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hangzhou Weiguang sustained solid returns over the last few months and may actually be approaching a breakup point.

CNOOC Limited

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Hangzhou Weiguang and CNOOC

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

The idea behind Hangzhou Weiguang Electronic and CNOOC Limited 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.