Correlation Between Huaneng Lancang and Touchstone International

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

Diversification Opportunities for Huaneng Lancang and Touchstone International

0.31

Correlation Coefficient

Huaneng Lancang  Touchstone International

Weak diversification

The 3 months correlation between Huaneng and Touchstone is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Huaneng Lancang River and Touchstone International Medic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone International 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 Touchstone International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone International has no effect on the direction of Huaneng Lancang i.e., Huaneng Lancang and Touchstone International go up and down completely randomly.

Pair Corralation between Huaneng Lancang and Touchstone International

Assuming the 90 days trading horizon Huaneng Lancang River is expected to under-perform the Touchstone International. But the stock apears to be less risky and, when comparing its historical volatility, Huaneng Lancang River is 1.52 times less risky than Touchstone International. The stock trades about -0.42 of its potential returns per unit of risk. The Touchstone International Medical is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,830  in Touchstone International Medical on October 25, 2024 and sell it today you would earn a total of  60.00  from holding Touchstone International Medical or generate 3.28% return on investment over 90 days.

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

Huaneng Lancang River  vs.  Touchstone International Medic

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 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.

Touchstone International

Risk-Adjusted Performance

0 of 100

Insignificant

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

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

The idea behind Huaneng Lancang River and Touchstone International Medical 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.