Correlation Between Weihai Honglin and Dongguan Tarry

Can any of the company-specific risk be diversified away by investing in both Weihai Honglin and Dongguan Tarry 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 Dongguan Tarry 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 Dongguan Tarry Electronics, you can compare the effects of market volatilities on Weihai Honglin and Dongguan Tarry 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 Dongguan Tarry. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weihai Honglin and Dongguan Tarry.

Diversification Opportunities for Weihai Honglin and Dongguan Tarry

0.67

Correlation Coefficient

Weihai Honglin  Dongguan Tarry

Poor diversification

The 3 months correlation between Weihai and Dongguan is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Weihai Honglin Electronic and Dongguan Tarry Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongguan Tarry Elect 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 Dongguan Tarry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongguan Tarry Elect has no effect on the direction of Weihai Honglin i.e., Weihai Honglin and Dongguan Tarry go up and down completely randomly.

Pair Corralation between Weihai Honglin and Dongguan Tarry

Assuming the 90 days trading horizon Weihai Honglin is expected to generate 13.41 times less return on investment than Dongguan Tarry. But when comparing it to its historical volatility, Weihai Honglin Electronic is 1.32 times less risky than Dongguan Tarry. It trades about 0.0 of its potential returns per unit of risk. Dongguan Tarry Electronics is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,076  in Dongguan Tarry Electronics on October 5, 2024 and sell it today you would earn a total of  1,403  from holding Dongguan Tarry Electronics or generate 27.64% return on investment over 90 days.

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

Weihai Honglin Electronic  vs.  Dongguan Tarry Electronics

Weihai Honglin Electronic

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dongguan Tarry Elect

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Dongguan Tarry Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dongguan Tarry 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 Dongguan Tarry

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

The idea behind Weihai Honglin Electronic and Dongguan Tarry Electronics 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.