Correlation Between Guanghui Energy and Hunan Oil

Can any of the company-specific risk be diversified away by investing in both Guanghui Energy and Hunan Oil 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 Guanghui Energy and Hunan Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guanghui Energy Co and Hunan Oil Pump, you can compare the effects of market volatilities on Guanghui Energy and Hunan Oil 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 Guanghui Energy with a short position of Hunan Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guanghui Energy and Hunan Oil.

Diversification Opportunities for Guanghui Energy and Hunan Oil

-0.32

Correlation Coefficient

Guanghui Energy  Hunan Oil

Very good diversification

The 3 months correlation between Guanghui and Hunan is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Guanghui Energy Co and Hunan Oil Pump in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunan Oil Pump and Guanghui Energy 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 Guanghui Energy Co are associated (or correlated) with Hunan Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunan Oil Pump has no effect on the direction of Guanghui Energy i.e., Guanghui Energy and Hunan Oil go up and down completely randomly.

Pair Corralation between Guanghui Energy and Hunan Oil

Assuming the 90 days trading horizon Guanghui Energy Co is expected to under-perform the Hunan Oil. But the stock apears to be less risky and, when comparing its historical volatility, Guanghui Energy Co is 4.08 times less risky than Hunan Oil. The stock trades about -0.07 of its potential returns per unit of risk. The Hunan Oil Pump is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,125  in Hunan Oil Pump on December 27, 2024 and sell it today you would earn a total of  1,259  from holding Hunan Oil Pump or generate 59.25% return on investment over 90 days.

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

Guanghui Energy Co  vs.  Hunan Oil Pump

Guanghui Energy

Risk-Adjusted Performance

Very Weak

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

Hunan Oil Pump

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Oil Pump are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guanghui Energy and Hunan Oil

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

The idea behind Guanghui Energy Co and Hunan Oil Pump 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.