Correlation Between China World and Hubei Xingfa

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

By analyzing existing cross correlation between China World Trade and Hubei Xingfa Chemicals, you can compare the effects of market volatilities on China World and Hubei Xingfa 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 China World with a short position of Hubei Xingfa. Check out your portfolio center. Please also check ongoing floating volatility patterns of China World and Hubei Xingfa.

Diversification Opportunities for China World and Hubei Xingfa

-0.56

Correlation Coefficient

China World  Hubei Xingfa

Excellent diversification

The 3 months correlation between China and Hubei is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding China World Trade and Hubei Xingfa Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Xingfa Chemicals and China World 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 China World Trade are associated (or correlated) with Hubei Xingfa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Xingfa Chemicals has no effect on the direction of China World i.e., China World and Hubei Xingfa go up and down completely randomly.

Pair Corralation between China World and Hubei Xingfa

Assuming the 90 days trading horizon China World Trade is expected to generate 0.79 times more return on investment than Hubei Xingfa. However, China World Trade is 1.26 times less risky than Hubei Xingfa. It trades about 0.06 of its potential returns per unit of risk. Hubei Xingfa Chemicals is currently generating about -0.02 per unit of risk. If you would invest  1,640  in China World Trade on October 5, 2024 and sell it today you would earn a total of  779.00  from holding China World Trade or generate 47.5% return on investment over 90 days.

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

China World Trade  vs.  Hubei Xingfa Chemicals

China World Trade

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China World Trade has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Hubei Xingfa Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hubei Xingfa Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China World and Hubei Xingfa

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

The idea behind China World Trade and Hubei Xingfa Chemicals 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.