Correlation Between Hubei Xingfa and Caihong Display

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

Diversification Opportunities for Hubei Xingfa and Caihong Display

-0.42

Correlation Coefficient

Hubei Xingfa  Caihong Display

Very good diversification

The 3 months correlation between Hubei and Caihong is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Xingfa Chemicals and Caihong Display Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caihong Display Devices 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 Caihong Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caihong Display Devices has no effect on the direction of Hubei Xingfa i.e., Hubei Xingfa and Caihong Display go up and down completely randomly.

Pair Corralation between Hubei Xingfa and Caihong Display

Assuming the 90 days trading horizon Hubei Xingfa is expected to generate 46.64 times less return on investment than Caihong Display. But when comparing it to its historical volatility, Hubei Xingfa Chemicals is 1.4 times less risky than Caihong Display. It trades about 0.0 of its potential returns per unit of risk. Caihong Display Devices is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  730.00  in Caihong Display Devices on October 24, 2024 and sell it today you would earn a total of  175.00  from holding Caihong Display Devices or generate 23.97% return on investment over 90 days.

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

Hubei Xingfa Chemicals  vs.  Caihong Display Devices

Hubei Xingfa Chemicals

Risk-Adjusted Performance

0 of 100

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.

Caihong Display Devices

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caihong Display Devices are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Caihong Display sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hubei Xingfa and Caihong Display

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

The idea behind Hubei Xingfa Chemicals and Caihong Display Devices 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.