Correlation Between Huaneng Lancang and Tianjin Ruixin

Can any of the company-specific risk be diversified away by investing in both Huaneng Lancang and Tianjin Ruixin 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 Tianjin Ruixin 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 Tianjin Ruixin Technology, you can compare the effects of market volatilities on Huaneng Lancang and Tianjin Ruixin 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 Tianjin Ruixin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huaneng Lancang and Tianjin Ruixin.

Diversification Opportunities for Huaneng Lancang and Tianjin Ruixin

-0.55

Correlation Coefficient

Huaneng Lancang  Tianjin Ruixin

Excellent diversification

The 3 months correlation between Huaneng and Tianjin is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Huaneng Lancang River and Tianjin Ruixin Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Ruixin Technology 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 Tianjin Ruixin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Ruixin Technology has no effect on the direction of Huaneng Lancang i.e., Huaneng Lancang and Tianjin Ruixin go up and down completely randomly.

Pair Corralation between Huaneng Lancang and Tianjin Ruixin

Assuming the 90 days trading horizon Huaneng Lancang is expected to generate 42.5 times less return on investment than Tianjin Ruixin. But when comparing it to its historical volatility, Huaneng Lancang River is 4.02 times less risky than Tianjin Ruixin. It trades about 0.02 of its potential returns per unit of risk. Tianjin Ruixin Technology is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,326  in Tianjin Ruixin Technology on September 19, 2024 and sell it today you would earn a total of  407.00  from holding Tianjin Ruixin Technology or generate 30.69% return on investment over 90 days.

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

Huaneng Lancang River  vs.  Tianjin Ruixin Technology

Huaneng Lancang River

Risk-Adjusted Performance

0 of 100

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 somewhat strong basic indicators, Huaneng Lancang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tianjin Ruixin Technology

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Ruixin Technology are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Ruixin sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Huaneng Lancang and Tianjin Ruixin

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

The idea behind Huaneng Lancang River and Tianjin Ruixin Technology 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.