Correlation Between Qingdao Hi and Guangzhou Haige

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

By analyzing existing cross correlation between Qingdao Hi Tech Moulds and Guangzhou Haige Communications, you can compare the effects of market volatilities on Qingdao Hi and Guangzhou Haige 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 Qingdao Hi with a short position of Guangzhou Haige. Check out your portfolio center. Please also check ongoing floating volatility patterns of Qingdao Hi and Guangzhou Haige.

Diversification Opportunities for Qingdao Hi and Guangzhou Haige

0.62

Correlation Coefficient

Qingdao Hi  Guangzhou Haige

Poor diversification

The 3 months correlation between Qingdao and Guangzhou is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Qingdao Hi Tech Moulds and Guangzhou Haige Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Haige Comm and Qingdao Hi 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 Qingdao Hi Tech Moulds are associated (or correlated) with Guangzhou Haige. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Haige Comm has no effect on the direction of Qingdao Hi i.e., Qingdao Hi and Guangzhou Haige go up and down completely randomly.

Pair Corralation between Qingdao Hi and Guangzhou Haige

Assuming the 90 days trading horizon Qingdao Hi Tech Moulds is expected to generate 2.16 times more return on investment than Guangzhou Haige. However, Qingdao Hi is 2.16 times more volatile than Guangzhou Haige Communications. It trades about 0.45 of its potential returns per unit of risk. Guangzhou Haige Communications is currently generating about 0.14 per unit of risk. If you would invest  2,125  in Qingdao Hi Tech Moulds on December 4, 2024 and sell it today you would earn a total of  1,175  from holding Qingdao Hi Tech Moulds or generate 55.29% return on investment over 90 days.

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

Qingdao Hi Tech Moulds  vs.  Guangzhou Haige Communications

Qingdao Hi Tech

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Qingdao Hi Tech Moulds are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Qingdao Hi sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangzhou Haige Comm

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangzhou Haige Communications 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 Qingdao Hi and Guangzhou Haige

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

The idea behind Qingdao Hi Tech Moulds and Guangzhou Haige 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.