Correlation Between Hua Xia and Tengda Construction

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

Diversification Opportunities for Hua Xia and Tengda Construction

0.46

Correlation Coefficient

Hua Xia  Tengda Construction

Very weak diversification

The 3 months correlation between Hua and Tengda is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Hua Xia Bank and Tengda Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tengda Construction 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 Tengda Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tengda Construction has no effect on the direction of Hua Xia i.e., Hua Xia and Tengda Construction go up and down completely randomly.

Pair Corralation between Hua Xia and Tengda Construction

Assuming the 90 days trading horizon Hua Xia Bank is expected to under-perform the Tengda Construction. But the stock apears to be less risky and, when comparing its historical volatility, Hua Xia Bank is 1.09 times less risky than Tengda Construction. The stock trades about -0.06 of its potential returns per unit of risk. The Tengda Construction Group is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  249.00  in Tengda Construction Group on December 24, 2024 and sell it today you would lose (11.00) from holding Tengda Construction Group or give up 4.42% of portfolio value over 90 days.

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

Hua Xia Bank  vs.  Tengda Construction Group

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.

Tengda Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tengda Construction Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tengda Construction 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 Tengda Construction

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

The idea behind Hua Xia Bank and Tengda Construction Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.