Correlation Between ZongTai Real and Huaku Development

Can any of the company-specific risk be diversified away by investing in both ZongTai Real and Huaku Development 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 ZongTai Real and Huaku Development into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ZongTai Real Estate and Huaku Development Co, you can compare the effects of market volatilities on ZongTai Real and Huaku Development 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 ZongTai Real with a short position of Huaku Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of ZongTai Real and Huaku Development.

Diversification Opportunities for ZongTai Real and Huaku Development

0.32

Correlation Coefficient

ZongTai Real  Huaku Development

Weak diversification

The 3 months correlation between ZongTai and Huaku is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding ZongTai Real Estate and Huaku Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaku Development and ZongTai Real 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 ZongTai Real Estate are associated (or correlated) with Huaku Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaku Development has no effect on the direction of ZongTai Real i.e., ZongTai Real and Huaku Development go up and down completely randomly.

Pair Corralation between ZongTai Real and Huaku Development

Assuming the 90 days trading horizon ZongTai Real Estate is expected to generate 0.84 times more return on investment than Huaku Development. However, ZongTai Real Estate is 1.19 times less risky than Huaku Development. It trades about 0.23 of its potential returns per unit of risk. Huaku Development Co is currently generating about 0.01 per unit of risk. If you would invest  3,215  in ZongTai Real Estate on December 23, 2024 and sell it today you would earn a total of  690.00  from holding ZongTai Real Estate or generate 21.46% return on investment over 90 days.

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

ZongTai Real Estate  vs.  Huaku Development Co

ZongTai Real Estate

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ZongTai Real Estate are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, ZongTai Real showed solid returns over the last few months and may actually be approaching a breakup point.

Huaku Development

Risk-Adjusted Performance

Very Weak

Over the last 90 days Huaku Development Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Huaku Development is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with ZongTai Real and Huaku Development

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

The idea behind ZongTai Real Estate and Huaku Development 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.