Correlation Between Huaku Development and Prime Oil

Can any of the company-specific risk be diversified away by investing in both Huaku Development and Prime Oil 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 Prime Oil 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 Prime Oil Chemical, you can compare the effects of market volatilities on Huaku Development and Prime Oil 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 Prime Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huaku Development and Prime Oil.

Diversification Opportunities for Huaku Development and Prime Oil

0.5

Correlation Coefficient

Huaku Development  Prime Oil

Very weak diversification

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

Pair Corralation between Huaku Development and Prime Oil

Assuming the 90 days trading horizon Huaku Development Co is expected to under-perform the Prime Oil. In addition to that, Huaku Development is 3.95 times more volatile than Prime Oil Chemical. It trades about -0.01 of its total potential returns per unit of risk. Prime Oil Chemical is currently generating about -0.02 per unit of volatility. If you would invest  1,810  in Prime Oil Chemical on December 3, 2024 and sell it today you would lose (10.00) from holding Prime Oil Chemical or give up 0.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.25%
Values	Daily Returns

Huaku Development Co  vs.  Prime Oil Chemical

Huaku Development

Risk-Adjusted Performance

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 fairly stable basic indicators, Huaku Development is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Prime Oil Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prime Oil Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Prime Oil 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 Huaku Development and Prime Oil

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

The idea behind Huaku Development Co and Prime Oil Chemical 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 Transaction History module to view history of all your transactions and understand their impact on performance.