Correlation Between China Sports and Huitong Construction

Can any of the company-specific risk be diversified away by investing in both China Sports and Huitong Construction 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 Huitong Construction 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 Huitong Construction Group, you can compare the effects of market volatilities on China Sports and Huitong Construction 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 Huitong Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Sports and Huitong Construction.

Diversification Opportunities for China Sports and Huitong Construction

0.54

Correlation Coefficient

China Sports  Huitong Construction

Very weak diversification

The 3 months correlation between China and Huitong is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding China Sports Industry and Huitong Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huitong Construction 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 Huitong Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huitong Construction has no effect on the direction of China Sports i.e., China Sports and Huitong Construction go up and down completely randomly.

Pair Corralation between China Sports and Huitong Construction

Assuming the 90 days trading horizon China Sports is expected to generate 2.82 times less return on investment than Huitong Construction. In addition to that, China Sports is 1.18 times more volatile than Huitong Construction Group. It trades about 0.02 of its total potential returns per unit of risk. Huitong Construction Group is currently generating about 0.08 per unit of volatility. If you would invest  484.00  in Huitong Construction Group on December 1, 2024 and sell it today you would earn a total of  10.00  from holding Huitong Construction Group or generate 2.07% return on investment over 90 days.

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

China Sports Industry  vs.  Huitong Construction Group

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 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.

Huitong Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Huitong Construction Group 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.

Pair Trading with China Sports and Huitong Construction

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

The idea behind China Sports Industry and Huitong Construction Group 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.