Correlation Between IBF Financial and Huaku Development

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

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

Diversification Opportunities for IBF Financial and Huaku Development

0.41

Correlation Coefficient

IBF Financial  Huaku Development

Very weak diversification

The 3 months correlation between IBF and Huaku is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding IBF Financial Holdings and Huaku Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaku Development and IBF Financial 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 IBF Financial Holdings are associated (or correlated) with Huaku Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaku Development has no effect on the direction of IBF Financial i.e., IBF Financial and Huaku Development go up and down completely randomly.

Pair Corralation between IBF Financial and Huaku Development

Assuming the 90 days trading horizon IBF Financial Holdings is expected to generate 0.52 times more return on investment than Huaku Development. However, IBF Financial Holdings is 1.91 times less risky than Huaku Development. It trades about 0.04 of its potential returns per unit of risk. Huaku Development Co is currently generating about -0.11 per unit of risk. If you would invest  1,480  in IBF Financial Holdings on September 18, 2024 and sell it today you would earn a total of  30.00  from holding IBF Financial Holdings or generate 2.03% return on investment over 90 days.

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

IBF Financial Holdings  vs.  Huaku Development Co

IBF Financial Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in IBF Financial Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, IBF Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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 abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with IBF Financial and Huaku Development

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

The idea behind IBF Financial Holdings and Huaku Development 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.