Correlation Between Nan Yang and Hung Chou

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

By analyzing existing cross correlation between Nan Yang Dyeing and Hung Chou Fiber, you can compare the effects of market volatilities on Nan Yang and Hung Chou 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 Nan Yang with a short position of Hung Chou. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nan Yang and Hung Chou.

Diversification Opportunities for Nan Yang and Hung Chou

-0.57

Correlation Coefficient

Nan Yang  Hung Chou

Excellent diversification

The 3 months correlation between Nan and Hung is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Nan Yang Dyeing and Hung Chou Fiber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hung Chou Fiber and Nan Yang 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 Nan Yang Dyeing are associated (or correlated) with Hung Chou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hung Chou Fiber has no effect on the direction of Nan Yang i.e., Nan Yang and Hung Chou go up and down completely randomly.

Pair Corralation between Nan Yang and Hung Chou

Assuming the 90 days trading horizon Nan Yang Dyeing is expected to under-perform the Hung Chou. But the stock apears to be less risky and, when comparing its historical volatility, Nan Yang Dyeing is 3.72 times less risky than Hung Chou. The stock trades about -0.34 of its potential returns per unit of risk. The Hung Chou Fiber is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,080  in Hung Chou Fiber on October 8, 2024 and sell it today you would earn a total of  15.00  from holding Hung Chou Fiber or generate 1.39% return on investment over 90 days.

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

Nan Yang Dyeing  vs.  Hung Chou Fiber

Nan Yang Dyeing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nan Yang Dyeing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Nan Yang is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Hung Chou Fiber

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hung Chou Fiber are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hung Chou may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Nan Yang and Hung Chou

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

The idea behind Nan Yang Dyeing and Hung Chou Fiber 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.