Correlation Between Harbin Air and Lianhe Chemical

Can any of the company-specific risk be diversified away by investing in both Harbin Air and Lianhe Chemical 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 Harbin Air and Lianhe Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Harbin Air Conditioning and Lianhe Chemical Technology, you can compare the effects of market volatilities on Harbin Air and Lianhe Chemical 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 Harbin Air with a short position of Lianhe Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Harbin Air and Lianhe Chemical.

Diversification Opportunities for Harbin Air and Lianhe Chemical

0.3

Correlation Coefficient

Harbin Air  Lianhe Chemical

Weak diversification

The 3 months correlation between Harbin and Lianhe is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Harbin Air Conditioning and Lianhe Chemical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lianhe Chemical Tech and Harbin Air 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 Harbin Air Conditioning are associated (or correlated) with Lianhe Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lianhe Chemical Tech has no effect on the direction of Harbin Air i.e., Harbin Air and Lianhe Chemical go up and down completely randomly.

Pair Corralation between Harbin Air and Lianhe Chemical

Assuming the 90 days trading horizon Harbin Air is expected to generate 1.87 times less return on investment than Lianhe Chemical. In addition to that, Harbin Air is 1.8 times more volatile than Lianhe Chemical Technology. It trades about 0.02 of its total potential returns per unit of risk. Lianhe Chemical Technology is currently generating about 0.07 per unit of volatility. If you would invest  565.00  in Lianhe Chemical Technology on October 25, 2024 and sell it today you would earn a total of  20.00  from holding Lianhe Chemical Technology or generate 3.54% return on investment over 90 days.

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

Harbin Air Conditioning  vs.  Lianhe Chemical Technology

Harbin Air Conditioning

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lianhe Chemical Tech

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Harbin Air and Lianhe Chemical

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

The idea behind Harbin Air Conditioning and Lianhe Chemical Technology 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 Transaction History module to view history of all your transactions and understand their impact on performance.