Correlation Between Hubei Dinglong and Guangzhou Haige

Can any of the company-specific risk be diversified away by investing in both Hubei Dinglong and Guangzhou Haige 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 Guangzhou Haige 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 Guangzhou Haige Communications, you can compare the effects of market volatilities on Hubei Dinglong and Guangzhou Haige 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 Guangzhou Haige. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Dinglong and Guangzhou Haige.

Diversification Opportunities for Hubei Dinglong and Guangzhou Haige

0.68

Correlation Coefficient

Hubei Dinglong  Guangzhou Haige

Poor diversification

The 3 months correlation between Hubei and Guangzhou is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Dinglong Chemical and Guangzhou Haige Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Haige Comm 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 Guangzhou Haige. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Haige Comm has no effect on the direction of Hubei Dinglong i.e., Hubei Dinglong and Guangzhou Haige go up and down completely randomly.

Pair Corralation between Hubei Dinglong and Guangzhou Haige

Assuming the 90 days trading horizon Hubei Dinglong is expected to generate 1.48 times less return on investment than Guangzhou Haige. But when comparing it to its historical volatility, Hubei Dinglong Chemical is 1.02 times less risky than Guangzhou Haige. It trades about 0.02 of its potential returns per unit of risk. Guangzhou Haige Communications is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  836.00  in Guangzhou Haige Communications on October 10, 2024 and sell it today you would earn a total of  183.00  from holding Guangzhou Haige Communications or generate 21.89% return on investment over 90 days.

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

Hubei Dinglong Chemical  vs.  Guangzhou Haige Communications

Hubei Dinglong Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hubei Dinglong Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hubei Dinglong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guangzhou Haige Comm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Haige Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Hubei Dinglong and Guangzhou Haige

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

The idea behind Hubei Dinglong Chemical and Guangzhou Haige Communications 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.