Correlation Between China Development and HOYA Resort

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

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

Diversification Opportunities for China Development and HOYA Resort

-0.08

Correlation Coefficient

China Development  HOYA Resort

Good diversification

The 3 months correlation between China and HOYA is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding China Development Financial and HOYA Resort Hotel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HOYA Resort Hotel and China 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 China Development Financial are associated (or correlated) with HOYA Resort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HOYA Resort Hotel has no effect on the direction of China Development i.e., China Development and HOYA Resort go up and down completely randomly.

Pair Corralation between China Development and HOYA Resort

Assuming the 90 days trading horizon China Development Financial is expected to under-perform the HOYA Resort. But the stock apears to be less risky and, when comparing its historical volatility, China Development Financial is 2.44 times less risky than HOYA Resort. The stock trades about 0.0 of its potential returns per unit of risk. The HOYA Resort Hotel is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,920  in HOYA Resort Hotel on October 20, 2024 and sell it today you would earn a total of  170.00  from holding HOYA Resort Hotel or generate 8.85% return on investment over 90 days.

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

China Development Financial  vs.  HOYA Resort Hotel

China Development

Risk-Adjusted Performance

0 of 100

Very Weak

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

HOYA Resort Hotel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HOYA Resort Hotel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, HOYA Resort may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with China Development and HOYA Resort

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

The idea behind China Development Financial and HOYA Resort Hotel 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.