Correlation Between Tongxing Environmental and Wuhan Yangtze

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

By analyzing existing cross correlation between Tongxing Environmental Protection and Wuhan Yangtze Communication, you can compare the effects of market volatilities on Tongxing Environmental and Wuhan Yangtze 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 Tongxing Environmental with a short position of Wuhan Yangtze. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tongxing Environmental and Wuhan Yangtze.

Diversification Opportunities for Tongxing Environmental and Wuhan Yangtze

0.91

Correlation Coefficient

Tongxing Environmental  Wuhan Yangtze

Almost no diversification

The 3 months correlation between Tongxing and Wuhan is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Tongxing Environmental Protect and Wuhan Yangtze Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wuhan Yangtze Commun and Tongxing Environmental 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 Tongxing Environmental Protection are associated (or correlated) with Wuhan Yangtze. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wuhan Yangtze Commun has no effect on the direction of Tongxing Environmental i.e., Tongxing Environmental and Wuhan Yangtze go up and down completely randomly.

Pair Corralation between Tongxing Environmental and Wuhan Yangtze

Assuming the 90 days trading horizon Tongxing Environmental is expected to generate 2.32 times less return on investment than Wuhan Yangtze. But when comparing it to its historical volatility, Tongxing Environmental Protection is 1.5 times less risky than Wuhan Yangtze. It trades about 0.21 of its potential returns per unit of risk. Wuhan Yangtze Communication is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  1,865  in Wuhan Yangtze Communication on September 5, 2024 and sell it today you would earn a total of  977.00  from holding Wuhan Yangtze Communication or generate 52.39% return on investment over 90 days.

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

Tongxing Environmental Protect  vs.  Wuhan Yangtze Communication

Tongxing Environmental

Risk-Adjusted Performance

12 of 100

Good

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

Wuhan Yangtze Commun

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wuhan Yangtze Communication are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuhan Yangtze sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tongxing Environmental and Wuhan Yangtze

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

The idea behind Tongxing Environmental Protection and Wuhan Yangtze Communication 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.