Correlation Between Hubei Xingfa and Hangzhou Gaoxin

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

Diversification Opportunities for Hubei Xingfa and Hangzhou Gaoxin

0.05

Correlation Coefficient

Hubei Xingfa  Hangzhou Gaoxin

Significant diversification

The 3 months correlation between Hubei and Hangzhou is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Xingfa Chemicals and Hangzhou Gaoxin Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Gaoxin Rubber 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 Hangzhou Gaoxin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Gaoxin Rubber has no effect on the direction of Hubei Xingfa i.e., Hubei Xingfa and Hangzhou Gaoxin go up and down completely randomly.

Pair Corralation between Hubei Xingfa and Hangzhou Gaoxin

Assuming the 90 days trading horizon Hubei Xingfa Chemicals is expected to under-perform the Hangzhou Gaoxin. But the stock apears to be less risky and, when comparing its historical volatility, Hubei Xingfa Chemicals is 4.14 times less risky than Hangzhou Gaoxin. The stock trades about -0.1 of its potential returns per unit of risk. The Hangzhou Gaoxin Rubber is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,104  in Hangzhou Gaoxin Rubber on December 2, 2024 and sell it today you would earn a total of  229.00  from holding Hangzhou Gaoxin Rubber or generate 20.74% 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.  Hangzhou Gaoxin Rubber

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 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.

Hangzhou Gaoxin Rubber

Risk-Adjusted Performance

Modest

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

Pair Trading with Hubei Xingfa and Hangzhou Gaoxin

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

The idea behind Hubei Xingfa Chemicals and Hangzhou Gaoxin Rubber 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.