Correlation Between Harbin Air and Mengtian Home

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

Diversification Opportunities for Harbin Air and Mengtian Home

0.79

Correlation Coefficient

Harbin Air  Mengtian Home

Poor diversification

The 3 months correlation between Harbin and Mengtian is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Harbin Air Conditioning and Mengtian Home Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mengtian Home Group 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 Mengtian Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mengtian Home Group has no effect on the direction of Harbin Air i.e., Harbin Air and Mengtian Home go up and down completely randomly.

Pair Corralation between Harbin Air and Mengtian Home

Assuming the 90 days trading horizon Harbin Air is expected to generate 4.26 times less return on investment than Mengtian Home. But when comparing it to its historical volatility, Harbin Air Conditioning is 2.1 times less risky than Mengtian Home. It trades about 0.06 of its potential returns per unit of risk. Mengtian Home Group is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,063  in Mengtian Home Group on September 21, 2024 and sell it today you would earn a total of  110.00  from holding Mengtian Home Group or generate 10.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Harbin Air Conditioning  vs.  Mengtian Home Group

Harbin Air Conditioning

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Harbin Air Conditioning are ranked lower than 15 (%) 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.

Mengtian Home Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mengtian Home Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mengtian Home sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Harbin Air and Mengtian Home

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

The idea behind Harbin Air Conditioning and Mengtian Home 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.