Correlation Between Huaneng Lancang and Jiangsu Shuangxing

Can any of the company-specific risk be diversified away by investing in both Huaneng Lancang and Jiangsu Shuangxing 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 Huaneng Lancang and Jiangsu Shuangxing into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Huaneng Lancang River and Jiangsu Shuangxing Color, you can compare the effects of market volatilities on Huaneng Lancang and Jiangsu Shuangxing 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 Huaneng Lancang with a short position of Jiangsu Shuangxing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huaneng Lancang and Jiangsu Shuangxing.

Diversification Opportunities for Huaneng Lancang and Jiangsu Shuangxing

0.63

Correlation Coefficient

Huaneng Lancang  Jiangsu Shuangxing

Poor diversification

The 3 months correlation between Huaneng and Jiangsu is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Huaneng Lancang River and Jiangsu Shuangxing Color in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Shuangxing Color and Huaneng Lancang 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 Huaneng Lancang River are associated (or correlated) with Jiangsu Shuangxing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Shuangxing Color has no effect on the direction of Huaneng Lancang i.e., Huaneng Lancang and Jiangsu Shuangxing go up and down completely randomly.

Pair Corralation between Huaneng Lancang and Jiangsu Shuangxing

Assuming the 90 days trading horizon Huaneng Lancang River is expected to under-perform the Jiangsu Shuangxing. But the stock apears to be less risky and, when comparing its historical volatility, Huaneng Lancang River is 1.85 times less risky than Jiangsu Shuangxing. The stock trades about -0.11 of its potential returns per unit of risk. The Jiangsu Shuangxing Color is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  552.00  in Jiangsu Shuangxing Color on December 26, 2024 and sell it today you would lose (23.00) from holding Jiangsu Shuangxing Color or give up 4.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Huaneng Lancang River  vs.  Jiangsu Shuangxing Color

Huaneng Lancang River

Risk-Adjusted Performance

Very Weak

Over the last 90 days Huaneng Lancang River has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Jiangsu Shuangxing Color

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jiangsu Shuangxing Color has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Jiangsu Shuangxing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Huaneng Lancang and Jiangsu Shuangxing

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

The idea behind Huaneng Lancang River and Jiangsu Shuangxing Color 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.