Correlation Between China Bills and Hotel Royal

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

By analyzing existing cross correlation between China Bills Finance and Hotel Royal Chihpen, you can compare the effects of market volatilities on China Bills and Hotel Royal 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 China Bills with a short position of Hotel Royal. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Bills and Hotel Royal.

Diversification Opportunities for China Bills and Hotel Royal

-0.5

Correlation Coefficient

China Bills  Hotel Royal

Very good diversification

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

Pair Corralation between China Bills and Hotel Royal

Assuming the 90 days trading horizon China Bills Finance is expected to generate 0.25 times more return on investment than Hotel Royal. However, China Bills Finance is 4.02 times less risky than Hotel Royal. It trades about 0.02 of its potential returns per unit of risk. Hotel Royal Chihpen is currently generating about -0.06 per unit of risk. If you would invest  1,465  in China Bills Finance on October 4, 2024 and sell it today you would earn a total of  40.00  from holding China Bills Finance or generate 2.73% return on investment over 90 days.

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

China Bills Finance  vs.  Hotel Royal Chihpen

China Bills Finance

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hotel Royal Chihpen

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hotel Royal Chihpen has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with China Bills and Hotel Royal

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

The idea behind China Bills Finance and Hotel Royal Chihpen 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.