Correlation Between Harbin Air and Guangzhou Tinci

Can any of the company-specific risk be diversified away by investing in both Harbin Air and Guangzhou Tinci 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 Guangzhou Tinci 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 Guangzhou Tinci Materials, you can compare the effects of market volatilities on Harbin Air and Guangzhou Tinci 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 Guangzhou Tinci. Check out your portfolio center. Please also check ongoing floating volatility patterns of Harbin Air and Guangzhou Tinci.

Diversification Opportunities for Harbin Air and Guangzhou Tinci

0.92

Correlation Coefficient

Harbin Air  Guangzhou Tinci

Almost no diversification

The 3 months correlation between Harbin and Guangzhou is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Harbin Air Conditioning and Guangzhou Tinci Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Tinci Materials 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 Guangzhou Tinci. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Tinci Materials has no effect on the direction of Harbin Air i.e., Harbin Air and Guangzhou Tinci go up and down completely randomly.

Pair Corralation between Harbin Air and Guangzhou Tinci

Assuming the 90 days trading horizon Harbin Air is expected to generate 1.37 times less return on investment than Guangzhou Tinci. But when comparing it to its historical volatility, Harbin Air Conditioning is 1.81 times less risky than Guangzhou Tinci. It trades about 0.28 of its potential returns per unit of risk. Guangzhou Tinci Materials is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,324  in Guangzhou Tinci Materials on September 14, 2024 and sell it today you would earn a total of  903.00  from holding Guangzhou Tinci Materials or generate 68.2% return on investment over 90 days.

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

Harbin Air Conditioning  vs.  Guangzhou Tinci Materials

Harbin Air Conditioning

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Harbin Air Conditioning are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Harbin Air sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangzhou Tinci Materials

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Tinci Materials are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Tinci sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Harbin Air and Guangzhou Tinci

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

The idea behind Harbin Air Conditioning and Guangzhou Tinci Materials 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.