Correlation Between Hua Xia and Lepu Medical

Can any of the company-specific risk be diversified away by investing in both Hua Xia and Lepu Medical 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 Lepu Medical 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 Lepu Medical Tech, you can compare the effects of market volatilities on Hua Xia and Lepu Medical 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 Lepu Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hua Xia and Lepu Medical.

Diversification Opportunities for Hua Xia and Lepu Medical

-0.44

Correlation Coefficient

Hua Xia  Lepu Medical

Very good diversification

The 3 months correlation between Hua and Lepu is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Hua Xia Bank and Lepu Medical Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lepu Medical Tech 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 Lepu Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lepu Medical Tech has no effect on the direction of Hua Xia i.e., Hua Xia and Lepu Medical go up and down completely randomly.

Pair Corralation between Hua Xia and Lepu Medical

Assuming the 90 days trading horizon Hua Xia Bank is expected to generate 0.54 times more return on investment than Lepu Medical. However, Hua Xia Bank is 1.84 times less risky than Lepu Medical. It trades about 0.05 of its potential returns per unit of risk. Lepu Medical Tech is currently generating about -0.05 per unit of risk. If you would invest  681.00  in Hua Xia Bank on October 9, 2024 and sell it today you would earn a total of  86.00  from holding Hua Xia Bank or generate 12.63% 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.  Lepu Medical Tech

Hua Xia Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Xia Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hua Xia may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Lepu Medical Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lepu Medical Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Hua Xia and Lepu Medical

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

The idea behind Hua Xia Bank and Lepu Medical Tech 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.