Correlation Between Huaku Development and Kuo Yang

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

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

Diversification Opportunities for Huaku Development and Kuo Yang

0.42

Correlation Coefficient

Huaku Development  Kuo Yang

Very weak diversification

The 3 months correlation between Huaku and Kuo is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Huaku Development Co and Kuo Yang Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kuo Yang Construction and Huaku Development 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 Huaku Development Co are associated (or correlated) with Kuo Yang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kuo Yang Construction has no effect on the direction of Huaku Development i.e., Huaku Development and Kuo Yang go up and down completely randomly.

Pair Corralation between Huaku Development and Kuo Yang

Assuming the 90 days trading horizon Huaku Development Co is expected to under-perform the Kuo Yang. In addition to that, Huaku Development is 1.64 times more volatile than Kuo Yang Construction. It trades about -0.19 of its total potential returns per unit of risk. Kuo Yang Construction is currently generating about -0.26 per unit of volatility. If you would invest  2,200  in Kuo Yang Construction on October 22, 2024 and sell it today you would lose (165.00) from holding Kuo Yang Construction or give up 7.5% of portfolio value over 90 days.

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

Huaku Development Co  vs.  Kuo Yang Construction

Huaku Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaku Development 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.

Kuo Yang Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kuo Yang Construction 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.

Pair Trading with Huaku Development and Kuo Yang

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

The idea behind Huaku Development Co and Kuo Yang Construction 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.