Correlation Between Hua Xia and Guobo Electronics

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

Diversification Opportunities for Hua Xia and Guobo Electronics

0.17

Correlation Coefficient

Hua Xia  Guobo Electronics

Average diversification

The 3 months correlation between Hua and Guobo is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Hua Xia Bank and Guobo Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guobo Electronics 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 Guobo Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guobo Electronics has no effect on the direction of Hua Xia i.e., Hua Xia and Guobo Electronics go up and down completely randomly.

Pair Corralation between Hua Xia and Guobo Electronics

Assuming the 90 days trading horizon Hua Xia Bank is expected to generate 0.63 times more return on investment than Guobo Electronics. However, Hua Xia Bank is 1.59 times less risky than Guobo Electronics. It trades about 0.26 of its potential returns per unit of risk. Guobo Electronics Co is currently generating about -0.13 per unit of risk. If you would invest  744.00  in Hua Xia Bank on September 29, 2024 and sell it today you would earn a total of  51.00  from holding Hua Xia Bank or generate 6.85% return on investment over 90 days.

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

Hua Xia Bank  vs.  Guobo Electronics Co

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 January 2025.

Guobo Electronics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guobo Electronics Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guobo Electronics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hua Xia and Guobo Electronics

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

The idea behind Hua Xia Bank and Guobo Electronics Co 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.