Correlation Between Weihai Honglin and Fujian Rongji

Can any of the company-specific risk be diversified away by investing in both Weihai Honglin and Fujian Rongji 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 Weihai Honglin and Fujian Rongji into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Weihai Honglin Electronic and Fujian Rongji Software, you can compare the effects of market volatilities on Weihai Honglin and Fujian Rongji 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 Weihai Honglin with a short position of Fujian Rongji. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weihai Honglin and Fujian Rongji.

Diversification Opportunities for Weihai Honglin and Fujian Rongji

0.55

Correlation Coefficient

Weihai Honglin  Fujian Rongji

Very weak diversification

The 3 months correlation between Weihai and Fujian is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Weihai Honglin Electronic and Fujian Rongji Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fujian Rongji Software and Weihai Honglin 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 Weihai Honglin Electronic are associated (or correlated) with Fujian Rongji. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fujian Rongji Software has no effect on the direction of Weihai Honglin i.e., Weihai Honglin and Fujian Rongji go up and down completely randomly.

Pair Corralation between Weihai Honglin and Fujian Rongji

Assuming the 90 days trading horizon Weihai Honglin Electronic is expected to generate 0.58 times more return on investment than Fujian Rongji. However, Weihai Honglin Electronic is 1.72 times less risky than Fujian Rongji. It trades about 0.09 of its potential returns per unit of risk. Fujian Rongji Software is currently generating about 0.0 per unit of risk. If you would invest  1,307  in Weihai Honglin Electronic on October 9, 2024 and sell it today you would earn a total of  183.00  from holding Weihai Honglin Electronic or generate 14.0% return on investment over 90 days.

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

Weihai Honglin Electronic  vs.  Fujian Rongji Software

Weihai Honglin Electronic

Risk-Adjusted Performance

7 of 100

Weak

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

Fujian Rongji Software

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Weihai Honglin and Fujian Rongji

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

The idea behind Weihai Honglin Electronic and Fujian Rongji Software 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.