Correlation Between Harbin Air and Dongguan Chitwing

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

Diversification Opportunities for Harbin Air and Dongguan Chitwing

0.81

Correlation Coefficient

Harbin Air  Dongguan Chitwing

Very poor diversification

The 3 months correlation between Harbin and Dongguan is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Harbin Air Conditioning and Dongguan Chitwing Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongguan Chitwing 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 Dongguan Chitwing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongguan Chitwing has no effect on the direction of Harbin Air i.e., Harbin Air and Dongguan Chitwing go up and down completely randomly.

Pair Corralation between Harbin Air and Dongguan Chitwing

Assuming the 90 days trading horizon Harbin Air is expected to generate 1.01 times less return on investment than Dongguan Chitwing. But when comparing it to its historical volatility, Harbin Air Conditioning is 1.71 times less risky than Dongguan Chitwing. It trades about 0.27 of its potential returns per unit of risk. Dongguan Chitwing Technology is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,697  in Dongguan Chitwing Technology on September 13, 2024 and sell it today you would earn a total of  707.00  from holding Dongguan Chitwing Technology or generate 41.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

Harbin Air Conditioning  vs.  Dongguan Chitwing Technology

Harbin Air Conditioning

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Harbin Air Conditioning are ranked lower than 20 (%) 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.

Dongguan Chitwing

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongguan Chitwing Technology are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongguan Chitwing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Harbin Air and Dongguan Chitwing

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

The idea behind Harbin Air Conditioning and Dongguan Chitwing 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.