Correlation Between Hua Xia and Chengtun Mining

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

Diversification Opportunities for Hua Xia and Chengtun Mining

0.48

Correlation Coefficient

Hua Xia  Chengtun Mining

Very weak diversification

The 3 months correlation between Hua and Chengtun is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Hua Xia Bank and Chengtun Mining Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengtun Mining Group 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 Chengtun Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengtun Mining Group has no effect on the direction of Hua Xia i.e., Hua Xia and Chengtun Mining go up and down completely randomly.

Pair Corralation between Hua Xia and Chengtun Mining

Assuming the 90 days trading horizon Hua Xia Bank is expected to generate 1.13 times more return on investment than Chengtun Mining. However, Hua Xia is 1.13 times more volatile than Chengtun Mining Group. It trades about 0.36 of its potential returns per unit of risk. Chengtun Mining Group is currently generating about -0.07 per unit of risk. If you would invest  725.00  in Hua Xia Bank on September 27, 2024 and sell it today you would earn a total of  73.00  from holding Hua Xia Bank or generate 10.07% return on investment over 90 days.

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

Hua Xia Bank  vs.  Chengtun Mining Group

Hua Xia Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Xia Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hua Xia sustained solid returns over the last few months and may actually be approaching a breakup point.

Chengtun Mining Group

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chengtun Mining Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengtun Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hua Xia and Chengtun Mining

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

The idea behind Hua Xia Bank and Chengtun Mining 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.