Correlation Between Zhongfu Information and Henan Provincial

Can any of the company-specific risk be diversified away by investing in both Zhongfu Information and Henan Provincial 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 Zhongfu Information and Henan Provincial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhongfu Information and Henan Provincial Communications, you can compare the effects of market volatilities on Zhongfu Information and Henan Provincial 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 Zhongfu Information with a short position of Henan Provincial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongfu Information and Henan Provincial.

Diversification Opportunities for Zhongfu Information and Henan Provincial

0.69

Correlation Coefficient

Zhongfu Information  Henan Provincial

Poor diversification

The 3 months correlation between Zhongfu and Henan is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Zhongfu Information and Henan Provincial Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henan Provincial Com and Zhongfu Information 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 Zhongfu Information are associated (or correlated) with Henan Provincial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henan Provincial Com has no effect on the direction of Zhongfu Information i.e., Zhongfu Information and Henan Provincial go up and down completely randomly.

Pair Corralation between Zhongfu Information and Henan Provincial

Assuming the 90 days trading horizon Zhongfu Information is expected to generate 1.47 times more return on investment than Henan Provincial. However, Zhongfu Information is 1.47 times more volatile than Henan Provincial Communications. It trades about 0.03 of its potential returns per unit of risk. Henan Provincial Communications is currently generating about -0.03 per unit of risk. If you would invest  1,603  in Zhongfu Information on December 25, 2024 and sell it today you would earn a total of  29.00  from holding Zhongfu Information or generate 1.81% return on investment over 90 days.

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

Zhongfu Information  vs.  Henan Provincial Communication

Zhongfu Information

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongfu Information are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Zhongfu Information is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Henan Provincial Com

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Zhongfu Information and Henan Provincial

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

The idea behind Zhongfu Information and Henan Provincial 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.