Correlation Between Hua Xia and Zhongshan Broad-Ocean

Can any of the company-specific risk be diversified away by investing in both Hua Xia and Zhongshan Broad-Ocean 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 Hua Xia and Zhongshan Broad-Ocean into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hua Xia Bank and Zhongshan Broad Ocean Motor, you can compare the effects of market volatilities on Hua Xia and Zhongshan Broad-Ocean 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 Hua Xia with a short position of Zhongshan Broad-Ocean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hua Xia and Zhongshan Broad-Ocean.

Diversification Opportunities for Hua Xia and Zhongshan Broad-Ocean

-0.4

Correlation Coefficient

Hua Xia  Zhongshan Broad-Ocean

Very good diversification

The 3 months correlation between Hua and Zhongshan is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Hua Xia Bank and Zhongshan Broad Ocean Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongshan Broad Ocean and Hua Xia 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 Hua Xia Bank are associated (or correlated) with Zhongshan Broad-Ocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongshan Broad Ocean has no effect on the direction of Hua Xia i.e., Hua Xia and Zhongshan Broad-Ocean go up and down completely randomly.

Pair Corralation between Hua Xia and Zhongshan Broad-Ocean

Assuming the 90 days trading horizon Hua Xia Bank is expected to under-perform the Zhongshan Broad-Ocean. But the stock apears to be less risky and, when comparing its historical volatility, Hua Xia Bank is 2.06 times less risky than Zhongshan Broad-Ocean. The stock trades about -0.06 of its potential returns per unit of risk. The Zhongshan Broad Ocean Motor is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  576.00  in Zhongshan Broad Ocean Motor on December 25, 2024 and sell it today you would earn a total of  121.00  from holding Zhongshan Broad Ocean Motor or generate 21.01% return on investment over 90 days.

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

Hua Xia Bank  vs.  Zhongshan Broad Ocean Motor

Hua Xia Bank

Risk-Adjusted Performance

Very Weak

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

Zhongshan Broad Ocean

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhongshan Broad Ocean Motor are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhongshan Broad-Ocean sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hua Xia and Zhongshan Broad-Ocean

The main advantage of trading using opposite Hua Xia and Zhongshan Broad-Ocean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hua Xia position performs unexpectedly, Zhongshan Broad-Ocean 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 Zhongshan Broad-Ocean will offset losses from the drop in Zhongshan Broad-Ocean's long position.

The idea behind Hua Xia Bank and Zhongshan Broad Ocean Motor 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.