Correlation Between Guangzhou Hongli and Hunan Mendale

Can any of the company-specific risk be diversified away by investing in both Guangzhou Hongli and Hunan Mendale 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 Guangzhou Hongli and Hunan Mendale into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangzhou Hongli Opto and Hunan Mendale Hometextile, you can compare the effects of market volatilities on Guangzhou Hongli and Hunan Mendale 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 Guangzhou Hongli with a short position of Hunan Mendale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangzhou Hongli and Hunan Mendale.

Diversification Opportunities for Guangzhou Hongli and Hunan Mendale

0.63

Correlation Coefficient

Guangzhou Hongli  Hunan Mendale

Poor diversification

The 3 months correlation between Guangzhou and Hunan is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Hongli Opto and Hunan Mendale Hometextile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunan Mendale Hometextile and Guangzhou Hongli 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 Guangzhou Hongli Opto are associated (or correlated) with Hunan Mendale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunan Mendale Hometextile has no effect on the direction of Guangzhou Hongli i.e., Guangzhou Hongli and Hunan Mendale go up and down completely randomly.

Pair Corralation between Guangzhou Hongli and Hunan Mendale

Assuming the 90 days trading horizon Guangzhou Hongli Opto is expected to under-perform the Hunan Mendale. But the stock apears to be less risky and, when comparing its historical volatility, Guangzhou Hongli Opto is 1.26 times less risky than Hunan Mendale. The stock trades about -0.08 of its potential returns per unit of risk. The Hunan Mendale Hometextile is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  255.00  in Hunan Mendale Hometextile on October 6, 2024 and sell it today you would earn a total of  100.00  from holding Hunan Mendale Hometextile or generate 39.22% return on investment over 90 days.

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

Guangzhou Hongli Opto  vs.  Hunan Mendale Hometextile

Guangzhou Hongli Opto

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Hongli Opto has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Hunan Mendale Hometextile

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Mendale Hometextile are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Mendale sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangzhou Hongli and Hunan Mendale

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

The idea behind Guangzhou Hongli Opto and Hunan Mendale Hometextile 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.