Correlation Between Huafa Industrial and Guangzhou Boji

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

Diversification Opportunities for Huafa Industrial and Guangzhou Boji

0.73

Correlation Coefficient

Huafa Industrial  Guangzhou Boji

Poor diversification

The 3 months correlation between Huafa and Guangzhou is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Huafa Industrial Co and Guangzhou Boji Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Boji Medical 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 Guangzhou Boji. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Boji Medical has no effect on the direction of Huafa Industrial i.e., Huafa Industrial and Guangzhou Boji go up and down completely randomly.

Pair Corralation between Huafa Industrial and Guangzhou Boji

Assuming the 90 days trading horizon Huafa Industrial Co is expected to under-perform the Guangzhou Boji. But the stock apears to be less risky and, when comparing its historical volatility, Huafa Industrial Co is 1.8 times less risky than Guangzhou Boji. The stock trades about -0.2 of its potential returns per unit of risk. The Guangzhou Boji Medical is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  869.00  in Guangzhou Boji Medical on September 23, 2024 and sell it today you would earn a total of  100.00  from holding Guangzhou Boji Medical or generate 11.51% return on investment over 90 days.

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

Huafa Industrial Co  vs.  Guangzhou Boji Medical

Huafa Industrial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Huafa Industrial Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huafa Industrial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Guangzhou Boji Medical

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Huafa Industrial and Guangzhou Boji

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

The idea behind Huafa Industrial Co and Guangzhou Boji Medical 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.

Check out your portfolio center.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.