Correlation Between Huafa Industrial and Henan Shuanghui

Can any of the company-specific risk be diversified away by investing in both Huafa Industrial and Henan Shuanghui 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 Huafa Industrial and Henan Shuanghui into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Huafa Industrial Co and Henan Shuanghui Investment, you can compare the effects of market volatilities on Huafa Industrial and Henan Shuanghui 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 Huafa Industrial with a short position of Henan Shuanghui. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huafa Industrial and Henan Shuanghui.

Diversification Opportunities for Huafa Industrial and Henan Shuanghui

0.53

Correlation Coefficient

Huafa Industrial  Henan Shuanghui

Very weak diversification

The 3 months correlation between Huafa and Henan is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Huafa Industrial Co and Henan Shuanghui Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henan Shuanghui Inve and Huafa Industrial 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 Huafa Industrial Co are associated (or correlated) with Henan Shuanghui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henan Shuanghui Inve has no effect on the direction of Huafa Industrial i.e., Huafa Industrial and Henan Shuanghui go up and down completely randomly.

Pair Corralation between Huafa Industrial and Henan Shuanghui

Assuming the 90 days trading horizon Huafa Industrial Co is expected to under-perform the Henan Shuanghui. In addition to that, Huafa Industrial is 1.38 times more volatile than Henan Shuanghui Investment. It trades about -0.09 of its total potential returns per unit of risk. Henan Shuanghui Investment is currently generating about 0.04 per unit of volatility. If you would invest  2,615  in Henan Shuanghui Investment on December 29, 2024 and sell it today you would earn a total of  67.00  from holding Henan Shuanghui Investment or generate 2.56% return on investment over 90 days.

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

Huafa Industrial Co  vs.  Henan Shuanghui Investment

Huafa Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Huafa Industrial Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Henan Shuanghui Inve

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Henan Shuanghui Investment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Henan Shuanghui is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Huafa Industrial and Henan Shuanghui

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

The idea behind Huafa Industrial Co and Henan Shuanghui Investment 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.