Correlation Between Hangzhou Guotai and China Animal

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

By analyzing existing cross correlation between Hangzhou Guotai Environmental and China Animal Husbandry, you can compare the effects of market volatilities on Hangzhou Guotai and China Animal 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 Hangzhou Guotai with a short position of China Animal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hangzhou Guotai and China Animal.

Diversification Opportunities for Hangzhou Guotai and China Animal

-0.54

Correlation Coefficient

Hangzhou Guotai  China Animal

Excellent diversification

The 3 months correlation between Hangzhou and China is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Hangzhou Guotai Environmental and China Animal Husbandry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Animal Husbandry and Hangzhou Guotai 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 Hangzhou Guotai Environmental are associated (or correlated) with China Animal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Animal Husbandry has no effect on the direction of Hangzhou Guotai i.e., Hangzhou Guotai and China Animal go up and down completely randomly.

Pair Corralation between Hangzhou Guotai and China Animal

Assuming the 90 days trading horizon Hangzhou Guotai Environmental is expected to generate 1.44 times more return on investment than China Animal. However, Hangzhou Guotai is 1.44 times more volatile than China Animal Husbandry. It trades about 0.06 of its potential returns per unit of risk. China Animal Husbandry is currently generating about -0.07 per unit of risk. If you would invest  2,854  in Hangzhou Guotai Environmental on December 25, 2024 and sell it today you would earn a total of  164.00  from holding Hangzhou Guotai Environmental or generate 5.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Hangzhou Guotai Environmental  vs.  China Animal Husbandry

Hangzhou Guotai Envi

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hangzhou Guotai Environmental are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hangzhou Guotai may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Animal Husbandry

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Hangzhou Guotai and China Animal

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

The idea behind Hangzhou Guotai Environmental and China Animal Husbandry 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.