Correlation Between Huafa Industrial and Guangdong Zhongsheng

Can any of the company-specific risk be diversified away by investing in both Huafa Industrial and Guangdong Zhongsheng 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 Guangdong Zhongsheng 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 Guangdong Zhongsheng Pharmaceutical, you can compare the effects of market volatilities on Huafa Industrial and Guangdong Zhongsheng 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 Guangdong Zhongsheng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huafa Industrial and Guangdong Zhongsheng.

Diversification Opportunities for Huafa Industrial and Guangdong Zhongsheng

0.61

Correlation Coefficient

Huafa Industrial  Guangdong Zhongsheng

Poor diversification

The 3 months correlation between Huafa and Guangdong is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Huafa Industrial Co and Guangdong Zhongsheng Pharmaceu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Zhongsheng 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 Guangdong Zhongsheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Zhongsheng has no effect on the direction of Huafa Industrial i.e., Huafa Industrial and Guangdong Zhongsheng go up and down completely randomly.

Pair Corralation between Huafa Industrial and Guangdong Zhongsheng

Assuming the 90 days trading horizon Huafa Industrial Co is expected to under-perform the Guangdong Zhongsheng. But the stock apears to be less risky and, when comparing its historical volatility, Huafa Industrial Co is 1.18 times less risky than Guangdong Zhongsheng. The stock trades about -0.29 of its potential returns per unit of risk. The Guangdong Zhongsheng Pharmaceutical is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  1,315  in Guangdong Zhongsheng Pharmaceutical on October 6, 2024 and sell it today you would lose (135.00) from holding Guangdong Zhongsheng Pharmaceutical or give up 10.27% of portfolio value over 90 days.

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

Huafa Industrial Co  vs.  Guangdong Zhongsheng Pharmaceu

Huafa Industrial

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Guangdong Zhongsheng

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Zhongsheng Pharmaceutical 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Huafa Industrial and Guangdong Zhongsheng

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

The idea behind Huafa Industrial Co and Guangdong Zhongsheng Pharmaceutical 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 Stocks Directory module to find actively traded stocks across global markets.