Correlation Between Puyang Huicheng and Hangzhou Prevail

Can any of the company-specific risk be diversified away by investing in both Puyang Huicheng and Hangzhou Prevail 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 Puyang Huicheng and Hangzhou Prevail into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Puyang Huicheng Electronic and Hangzhou Prevail Optoelectronic, you can compare the effects of market volatilities on Puyang Huicheng and Hangzhou Prevail 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 Puyang Huicheng with a short position of Hangzhou Prevail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Puyang Huicheng and Hangzhou Prevail.

Diversification Opportunities for Puyang Huicheng and Hangzhou Prevail

0.85

Correlation Coefficient

Puyang Huicheng  Hangzhou Prevail

Very poor diversification

The 3 months correlation between Puyang and Hangzhou is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Puyang Huicheng Electronic and Hangzhou Prevail Optoelectroni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Prevail Opt and Puyang Huicheng 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 Puyang Huicheng Electronic are associated (or correlated) with Hangzhou Prevail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Prevail Opt has no effect on the direction of Puyang Huicheng i.e., Puyang Huicheng and Hangzhou Prevail go up and down completely randomly.

Pair Corralation between Puyang Huicheng and Hangzhou Prevail

Assuming the 90 days trading horizon Puyang Huicheng Electronic is expected to generate 0.77 times more return on investment than Hangzhou Prevail. However, Puyang Huicheng Electronic is 1.3 times less risky than Hangzhou Prevail. It trades about -0.05 of its potential returns per unit of risk. Hangzhou Prevail Optoelectronic is currently generating about -0.06 per unit of risk. If you would invest  1,629  in Puyang Huicheng Electronic on November 29, 2024 and sell it today you would lose (116.00) from holding Puyang Huicheng Electronic or give up 7.12% of portfolio value over 90 days.

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

Puyang Huicheng Electronic  vs.  Hangzhou Prevail Optoelectroni

Puyang Huicheng Elec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Puyang Huicheng Electronic 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.

Hangzhou Prevail Opt

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hangzhou Prevail Optoelectronic 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 Puyang Huicheng and Hangzhou Prevail

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

The idea behind Puyang Huicheng Electronic and Hangzhou Prevail Optoelectronic 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.