Correlation Between Huafa Industrial and Guangdong Taienkang

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

Diversification Opportunities for Huafa Industrial and Guangdong Taienkang

-0.46

Correlation Coefficient

Huafa Industrial  Guangdong Taienkang

Very good diversification

The 3 months correlation between Huafa and Guangdong is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Huafa Industrial Co and Guangdong Taienkang Pharmaceut in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Taienkang 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 Taienkang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Taienkang has no effect on the direction of Huafa Industrial i.e., Huafa Industrial and Guangdong Taienkang go up and down completely randomly.

Pair Corralation between Huafa Industrial and Guangdong Taienkang

Assuming the 90 days trading horizon Huafa Industrial Co is expected to under-perform the Guangdong Taienkang. In addition to that, Huafa Industrial is 1.06 times more volatile than Guangdong Taienkang Pharmaceutical. It trades about -0.05 of its total potential returns per unit of risk. Guangdong Taienkang Pharmaceutical is currently generating about -0.02 per unit of volatility. If you would invest  2,046  in Guangdong Taienkang Pharmaceutical on October 22, 2024 and sell it today you would lose (477.00) from holding Guangdong Taienkang Pharmaceutical or give up 23.31% of portfolio value over 90 days.

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

Huafa Industrial Co  vs.  Guangdong Taienkang Pharmaceut

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 Taienkang

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Taienkang Pharmaceutical are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Taienkang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Huafa Industrial and Guangdong Taienkang

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

The idea behind Huafa Industrial Co and Guangdong Taienkang 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.