Correlation Between Hubei Xingfa and Innovative Medical

Can any of the company-specific risk be diversified away by investing in both Hubei Xingfa and Innovative Medical 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 Hubei Xingfa and Innovative Medical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hubei Xingfa Chemicals and Innovative Medical Management, you can compare the effects of market volatilities on Hubei Xingfa and Innovative Medical 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 Hubei Xingfa with a short position of Innovative Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Xingfa and Innovative Medical.

Diversification Opportunities for Hubei Xingfa and Innovative Medical

0.14

Correlation Coefficient

Hubei Xingfa  Innovative Medical

Average diversification

The 3 months correlation between Hubei and Innovative is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Xingfa Chemicals and Innovative Medical Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovative Medical and Hubei Xingfa 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 Hubei Xingfa Chemicals are associated (or correlated) with Innovative Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovative Medical has no effect on the direction of Hubei Xingfa i.e., Hubei Xingfa and Innovative Medical go up and down completely randomly.

Pair Corralation between Hubei Xingfa and Innovative Medical

Assuming the 90 days trading horizon Hubei Xingfa Chemicals is expected to under-perform the Innovative Medical. But the stock apears to be less risky and, when comparing its historical volatility, Hubei Xingfa Chemicals is 1.74 times less risky than Innovative Medical. The stock trades about -0.02 of its potential returns per unit of risk. The Innovative Medical Management is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  679.00  in Innovative Medical Management on December 8, 2024 and sell it today you would earn a total of  336.00  from holding Innovative Medical Management or generate 49.48% return on investment over 90 days.

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

Hubei Xingfa Chemicals  vs.  Innovative Medical Management

Hubei Xingfa Chemicals

Risk-Adjusted Performance

Very Weak

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

Innovative Medical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Innovative Medical Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Innovative Medical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hubei Xingfa and Innovative Medical

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

The idea behind Hubei Xingfa Chemicals and Innovative Medical Management 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.