Correlation Between Hubei Xingfa and Anhui Deli

Can any of the company-specific risk be diversified away by investing in both Hubei Xingfa and Anhui Deli 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 Anhui Deli 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 Anhui Deli Household, you can compare the effects of market volatilities on Hubei Xingfa and Anhui Deli 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 Anhui Deli. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Xingfa and Anhui Deli.

Diversification Opportunities for Hubei Xingfa and Anhui Deli

0.73

Correlation Coefficient

Hubei Xingfa  Anhui Deli

Poor diversification

The 3 months correlation between Hubei and Anhui is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Xingfa Chemicals and Anhui Deli Household in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Deli Household 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 Anhui Deli. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Deli Household has no effect on the direction of Hubei Xingfa i.e., Hubei Xingfa and Anhui Deli go up and down completely randomly.

Pair Corralation between Hubei Xingfa and Anhui Deli

Assuming the 90 days trading horizon Hubei Xingfa Chemicals is expected to generate 0.71 times more return on investment than Anhui Deli. However, Hubei Xingfa Chemicals is 1.41 times less risky than Anhui Deli. It trades about -0.01 of its potential returns per unit of risk. Anhui Deli Household is currently generating about -0.01 per unit of risk. If you would invest  2,759  in Hubei Xingfa Chemicals on September 26, 2024 and sell it today you would lose (541.00) from holding Hubei Xingfa Chemicals or give up 19.61% of portfolio value over 90 days.

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

Hubei Xingfa Chemicals  vs.  Anhui Deli Household

Hubei Xingfa Chemicals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Xingfa Chemicals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Xingfa sustained solid returns over the last few months and may actually be approaching a breakup point.

Anhui Deli Household

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Deli Household are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Anhui Deli is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hubei Xingfa and Anhui Deli

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

The idea behind Hubei Xingfa Chemicals and Anhui Deli Household 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.