Correlation Between Shanxi Lanhua and HOB Biotech

Can any of the company-specific risk be diversified away by investing in both Shanxi Lanhua and HOB Biotech 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 Shanxi Lanhua and HOB Biotech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shanxi Lanhua Sci Tech and HOB Biotech Group, you can compare the effects of market volatilities on Shanxi Lanhua and HOB Biotech 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 Shanxi Lanhua with a short position of HOB Biotech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanxi Lanhua and HOB Biotech.

Diversification Opportunities for Shanxi Lanhua and HOB Biotech

0.19

Correlation Coefficient

Shanxi Lanhua  HOB Biotech

Average diversification

The 3 months correlation between Shanxi and HOB is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Shanxi Lanhua Sci Tech and HOB Biotech Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HOB Biotech Group and Shanxi Lanhua 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 Shanxi Lanhua Sci Tech are associated (or correlated) with HOB Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HOB Biotech Group has no effect on the direction of Shanxi Lanhua i.e., Shanxi Lanhua and HOB Biotech go up and down completely randomly.

Pair Corralation between Shanxi Lanhua and HOB Biotech

Assuming the 90 days trading horizon Shanxi Lanhua is expected to generate 11.95 times less return on investment than HOB Biotech. But when comparing it to its historical volatility, Shanxi Lanhua Sci Tech is 2.9 times less risky than HOB Biotech. It trades about 0.09 of its potential returns per unit of risk. HOB Biotech Group is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  2,254  in HOB Biotech Group on September 15, 2024 and sell it today you would earn a total of  8,448  from holding HOB Biotech Group or generate 374.8% return on investment over 90 days.

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

Shanxi Lanhua Sci Tech  vs.  HOB Biotech Group

Shanxi Lanhua Sci

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanxi Lanhua Sci Tech are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanxi Lanhua sustained solid returns over the last few months and may actually be approaching a breakup point.

HOB Biotech Group

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in HOB Biotech Group are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HOB Biotech sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanxi Lanhua and HOB Biotech

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

The idea behind Shanxi Lanhua Sci Tech and HOB Biotech 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.