Correlation Between Yulon and Hotai

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

By analyzing existing cross correlation between Yulon Motor Co and Hotai Motor Co, you can compare the effects of market volatilities on Yulon and Hotai 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 Yulon with a short position of Hotai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yulon and Hotai.

Diversification Opportunities for Yulon and Hotai

0.69

Correlation Coefficient

Yulon  Hotai

Poor diversification

The 3 months correlation between Yulon and Hotai is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Yulon Motor Co and Hotai Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hotai Motor and Yulon 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 Yulon Motor Co are associated (or correlated) with Hotai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hotai Motor has no effect on the direction of Yulon i.e., Yulon and Hotai go up and down completely randomly.

Pair Corralation between Yulon and Hotai

Assuming the 90 days trading horizon Yulon Motor Co is expected to under-perform the Hotai. In addition to that, Yulon is 1.44 times more volatile than Hotai Motor Co. It trades about -0.06 of its total potential returns per unit of risk. Hotai Motor Co is currently generating about -0.05 per unit of volatility. If you would invest  64,200  in Hotai Motor Co on September 16, 2024 and sell it today you would lose (3,000) from holding Hotai Motor Co or give up 4.67% of portfolio value over 90 days.

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

Yulon Motor Co  vs.  Hotai Motor Co

Yulon Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yulon Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Hotai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Yulon and Hotai

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

The idea behind Yulon Motor Co and Hotai Motor Co 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.