Correlation Between Hubei Dinglong and Fujian Oriental

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

Diversification Opportunities for Hubei Dinglong and Fujian Oriental

0.68

Correlation Coefficient

Hubei Dinglong  Fujian Oriental

Poor diversification

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

Pair Corralation between Hubei Dinglong and Fujian Oriental

Assuming the 90 days trading horizon Hubei Dinglong Chemical is expected to generate 0.82 times more return on investment than Fujian Oriental. However, Hubei Dinglong Chemical is 1.22 times less risky than Fujian Oriental. It trades about 0.08 of its potential returns per unit of risk. Fujian Oriental Silver is currently generating about 0.03 per unit of risk. If you would invest  2,385  in Hubei Dinglong Chemical on September 29, 2024 and sell it today you would earn a total of  308.00  from holding Hubei Dinglong Chemical or generate 12.91% 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.  Fujian Oriental Silver

Hubei Dinglong Chemical

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Dinglong Chemical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Dinglong sustained solid returns over the last few months and may actually be approaching a breakup point.

Fujian Oriental Silver

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fujian Oriental Silver are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fujian Oriental may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hubei Dinglong and Fujian Oriental

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

The idea behind Hubei Dinglong Chemical and Fujian Oriental Silver 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.