Correlation Between Super Dragon and Huafa Industrial

Can any of the company-specific risk be diversified away by investing in both Super Dragon and Huafa Industrial 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 Super Dragon and Huafa Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Super Dragon Engineering Plastics and Huafa Industrial Co, you can compare the effects of market volatilities on Super Dragon and Huafa Industrial 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 Super Dragon with a short position of Huafa Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Super Dragon and Huafa Industrial.

Diversification Opportunities for Super Dragon and Huafa Industrial

0.66

Correlation Coefficient

Super Dragon  Huafa Industrial

Poor diversification

The 3 months correlation between Super and Huafa is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Super Dragon Engineering Plast and Huafa Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huafa Industrial and Super Dragon 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 Super Dragon Engineering Plastics are associated (or correlated) with Huafa Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huafa Industrial has no effect on the direction of Super Dragon i.e., Super Dragon and Huafa Industrial go up and down completely randomly.

Pair Corralation between Super Dragon and Huafa Industrial

Assuming the 90 days trading horizon Super Dragon Engineering Plastics is expected to generate 1.15 times more return on investment than Huafa Industrial. However, Super Dragon is 1.15 times more volatile than Huafa Industrial Co. It trades about 0.05 of its potential returns per unit of risk. Huafa Industrial Co is currently generating about 0.02 per unit of risk. If you would invest  3,316  in Super Dragon Engineering Plastics on September 21, 2024 and sell it today you would earn a total of  363.00  from holding Super Dragon Engineering Plastics or generate 10.95% return on investment over 90 days.

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

Super Dragon Engineering Plast  vs.  Huafa Industrial Co

Super Dragon Enginee

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Super Dragon Engineering Plastics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Super Dragon sustained solid returns over the last few months and may actually be approaching a breakup point.

Huafa Industrial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Huafa Industrial Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huafa Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Super Dragon and Huafa Industrial

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

The idea behind Super Dragon Engineering Plastics and Huafa Industrial Co 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.