Correlation Between Hubei Forbon and Shanghai Ziyan

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

By analyzing existing cross correlation between Hubei Forbon Technology and Shanghai Ziyan Foods, you can compare the effects of market volatilities on Hubei Forbon and Shanghai Ziyan 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 Forbon with a short position of Shanghai Ziyan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Forbon and Shanghai Ziyan.

Diversification Opportunities for Hubei Forbon and Shanghai Ziyan

-0.09

Correlation Coefficient

Hubei Forbon  Shanghai Ziyan

Good diversification

The 3 months correlation between Hubei and Shanghai is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Forbon Technology and Shanghai Ziyan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Ziyan Foods and Hubei Forbon 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 Forbon Technology are associated (or correlated) with Shanghai Ziyan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Ziyan Foods has no effect on the direction of Hubei Forbon i.e., Hubei Forbon and Shanghai Ziyan go up and down completely randomly.

Pair Corralation between Hubei Forbon and Shanghai Ziyan

Assuming the 90 days trading horizon Hubei Forbon Technology is expected to generate 0.88 times more return on investment than Shanghai Ziyan. However, Hubei Forbon Technology is 1.14 times less risky than Shanghai Ziyan. It trades about 0.01 of its potential returns per unit of risk. Shanghai Ziyan Foods is currently generating about -0.01 per unit of risk. If you would invest  927.00  in Hubei Forbon Technology on December 2, 2024 and sell it today you would lose (9.00) from holding Hubei Forbon Technology or give up 0.97% of portfolio value over 90 days.

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

Hubei Forbon Technology  vs.  Shanghai Ziyan Foods

Hubei Forbon Technology

Risk-Adjusted Performance

Very Weak

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

Shanghai Ziyan Foods

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hubei Forbon and Shanghai Ziyan

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

The idea behind Hubei Forbon Technology and Shanghai Ziyan Foods 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.