Correlation Between Huang Hsiang and Ruentex Materials

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

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

Diversification Opportunities for Huang Hsiang and Ruentex Materials

0.5

Correlation Coefficient

Huang Hsiang  Ruentex Materials

Very weak diversification

The 3 months correlation between Huang and Ruentex is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Huang Hsiang Construction and Ruentex Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ruentex Materials and Huang Hsiang 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 Huang Hsiang Construction are associated (or correlated) with Ruentex Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ruentex Materials has no effect on the direction of Huang Hsiang i.e., Huang Hsiang and Ruentex Materials go up and down completely randomly.

Pair Corralation between Huang Hsiang and Ruentex Materials

Assuming the 90 days trading horizon Huang Hsiang Construction is expected to generate 2.65 times more return on investment than Ruentex Materials. However, Huang Hsiang is 2.65 times more volatile than Ruentex Materials Co. It trades about -0.02 of its potential returns per unit of risk. Ruentex Materials Co is currently generating about -0.07 per unit of risk. If you would invest  7,620  in Huang Hsiang Construction on December 2, 2024 and sell it today you would lose (310.00) from holding Huang Hsiang Construction or give up 4.07% of portfolio value over 90 days.

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

Huang Hsiang Construction  vs.  Ruentex Materials Co

Huang Hsiang Construction

Risk-Adjusted Performance

Very Weak

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

Ruentex Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ruentex Materials Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Ruentex Materials 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 Huang Hsiang and Ruentex Materials

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

The idea behind Huang Hsiang Construction and Ruentex Materials 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.