Correlation Between Hubei Dinglong and China Securities

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

By analyzing existing cross correlation between Hubei Dinglong Chemical and China Securities 800, you can compare the effects of market volatilities on Hubei Dinglong and China Securities 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 Hubei Dinglong with a short position of China Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Dinglong and China Securities.

Diversification Opportunities for Hubei Dinglong and China Securities

0.97

Correlation Coefficient

Hubei Dinglong  China Securities

Almost no diversification

The 3 months correlation between Hubei and China is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Dinglong Chemical and China Securities 800 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Securities 800 and Hubei Dinglong 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 Hubei Dinglong Chemical are associated (or correlated) with China Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Securities 800 has no effect on the direction of Hubei Dinglong i.e., Hubei Dinglong and China Securities go up and down completely randomly.

Pair Corralation between Hubei Dinglong and China Securities

Assuming the 90 days trading horizon Hubei Dinglong Chemical is expected to generate 1.66 times more return on investment than China Securities. However, Hubei Dinglong is 1.66 times more volatile than China Securities 800. It trades about 0.18 of its potential returns per unit of risk. China Securities 800 is currently generating about 0.18 per unit of risk. If you would invest  1,876  in Hubei Dinglong Chemical on September 17, 2024 and sell it today you would earn a total of  817.00  from holding Hubei Dinglong Chemical or generate 43.55% return on investment over 90 days.

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

Hubei Dinglong Chemical  vs.  China Securities 800

Pair Trading with Hubei Dinglong and China Securities

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

The idea behind Hubei Dinglong Chemical and China Securities 800 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.