Correlation Between Hua Xia and Wuxi Xuelang

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

Diversification Opportunities for Hua Xia and Wuxi Xuelang

-0.04

Correlation Coefficient

Hua Xia  Wuxi Xuelang

Good diversification

The 3 months correlation between Hua and Wuxi is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Hua Xia Bank and Wuxi Xuelang Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wuxi Xuelang Environ 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 Wuxi Xuelang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wuxi Xuelang Environ has no effect on the direction of Hua Xia i.e., Hua Xia and Wuxi Xuelang go up and down completely randomly.

Pair Corralation between Hua Xia and Wuxi Xuelang

Assuming the 90 days trading horizon Hua Xia Bank is expected to generate 0.38 times more return on investment than Wuxi Xuelang. However, Hua Xia Bank is 2.6 times less risky than Wuxi Xuelang. It trades about 0.07 of its potential returns per unit of risk. Wuxi Xuelang Environmental is currently generating about 0.0 per unit of risk. If you would invest  548.00  in Hua Xia Bank on October 24, 2024 and sell it today you would earn a total of  205.00  from holding Hua Xia Bank or generate 37.41% return on investment over 90 days.

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

Hua Xia Bank  vs.  Wuxi Xuelang Environmental

Hua Xia Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Xia Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Wuxi Xuelang Environ

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wuxi Xuelang Environmental are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Wuxi Xuelang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hua Xia and Wuxi Xuelang

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

The idea behind Hua Xia Bank and Wuxi Xuelang Environmental 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.