Correlation Between Ningbo Jianan and Huizhou Speed

Can any of the company-specific risk be diversified away by investing in both Ningbo Jianan and Huizhou Speed 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 Ningbo Jianan and Huizhou Speed into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ningbo Jianan Electronics and Huizhou Speed Wireless, you can compare the effects of market volatilities on Ningbo Jianan and Huizhou Speed 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 Ningbo Jianan with a short position of Huizhou Speed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ningbo Jianan and Huizhou Speed.

Diversification Opportunities for Ningbo Jianan and Huizhou Speed

0.72

Correlation Coefficient

Ningbo Jianan  Huizhou Speed

Poor diversification

The 3 months correlation between Ningbo and Huizhou is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Jianan Electronics and Huizhou Speed Wireless in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huizhou Speed Wireless and Ningbo Jianan 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 Ningbo Jianan Electronics are associated (or correlated) with Huizhou Speed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huizhou Speed Wireless has no effect on the direction of Ningbo Jianan i.e., Ningbo Jianan and Huizhou Speed go up and down completely randomly.

Pair Corralation between Ningbo Jianan and Huizhou Speed

Assuming the 90 days trading horizon Ningbo Jianan Electronics is expected to generate 0.92 times more return on investment than Huizhou Speed. However, Ningbo Jianan Electronics is 1.09 times less risky than Huizhou Speed. It trades about -0.07 of its potential returns per unit of risk. Huizhou Speed Wireless is currently generating about -0.13 per unit of risk. If you would invest  2,412  in Ningbo Jianan Electronics on September 27, 2024 and sell it today you would lose (119.00) from holding Ningbo Jianan Electronics or give up 4.93% of portfolio value over 90 days.

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

Ningbo Jianan Electronics  vs.  Huizhou Speed Wireless

Ningbo Jianan Electronics

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Jianan Electronics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Jianan sustained solid returns over the last few months and may actually be approaching a breakup point.

Huizhou Speed Wireless

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Huizhou Speed Wireless are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huizhou Speed sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ningbo Jianan and Huizhou Speed

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

The idea behind Ningbo Jianan Electronics and Huizhou Speed Wireless 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.