Correlation Between China Sports and Hefei Metalforming

Can any of the company-specific risk be diversified away by investing in both China Sports and Hefei Metalforming 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 China Sports and Hefei Metalforming into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Sports Industry and Hefei Metalforming Mach, you can compare the effects of market volatilities on China Sports and Hefei Metalforming 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 China Sports with a short position of Hefei Metalforming. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Sports and Hefei Metalforming.

Diversification Opportunities for China Sports and Hefei Metalforming

0.21

Correlation Coefficient

China Sports  Hefei Metalforming

Modest diversification

The 3 months correlation between China and Hefei is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding China Sports Industry and Hefei Metalforming Mach in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hefei Metalforming Mach and China Sports 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 China Sports Industry are associated (or correlated) with Hefei Metalforming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hefei Metalforming Mach has no effect on the direction of China Sports i.e., China Sports and Hefei Metalforming go up and down completely randomly.

Pair Corralation between China Sports and Hefei Metalforming

Assuming the 90 days trading horizon China Sports Industry is expected to under-perform the Hefei Metalforming. But the stock apears to be less risky and, when comparing its historical volatility, China Sports Industry is 1.92 times less risky than Hefei Metalforming. The stock trades about -0.01 of its potential returns per unit of risk. The Hefei Metalforming Mach is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  680.00  in Hefei Metalforming Mach on December 25, 2024 and sell it today you would earn a total of  342.00  from holding Hefei Metalforming Mach or generate 50.29% return on investment over 90 days.

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

China Sports Industry  vs.  Hefei Metalforming Mach

China Sports Industry

Risk-Adjusted Performance

Very Weak

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

Hefei Metalforming Mach

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hefei Metalforming Mach are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hefei Metalforming sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Sports and Hefei Metalforming

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

The idea behind China Sports Industry and Hefei Metalforming Mach 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.