Correlation Between Harbin Air and Shandong Longda

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

Diversification Opportunities for Harbin Air and Shandong Longda

-0.25

Correlation Coefficient

Harbin Air  Shandong Longda

Very good diversification

The 3 months correlation between Harbin and Shandong is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Harbin Air Conditioning and Shandong Longda Meat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Longda Meat 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 Shandong Longda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Longda Meat has no effect on the direction of Harbin Air i.e., Harbin Air and Shandong Longda go up and down completely randomly.

Pair Corralation between Harbin Air and Shandong Longda

Assuming the 90 days trading horizon Harbin Air Conditioning is expected to generate 2.25 times more return on investment than Shandong Longda. However, Harbin Air is 2.25 times more volatile than Shandong Longda Meat. It trades about 0.13 of its potential returns per unit of risk. Shandong Longda Meat is currently generating about -0.23 per unit of risk. If you would invest  437.00  in Harbin Air Conditioning on December 26, 2024 and sell it today you would earn a total of  114.00  from holding Harbin Air Conditioning or generate 26.09% return on investment over 90 days.

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

Harbin Air Conditioning  vs.  Shandong Longda Meat

Harbin Air Conditioning

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Harbin Air Conditioning are ranked lower than 10 (%) 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.

Shandong Longda Meat

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shandong Longda Meat has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Harbin Air and Shandong Longda

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

The idea behind Harbin Air Conditioning and Shandong Longda Meat 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.