Correlation Between Huafa Industrial and Shanghai Lingyun

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

Diversification Opportunities for Huafa Industrial and Shanghai Lingyun

0.83

Correlation Coefficient

Huafa Industrial  Shanghai Lingyun

Very poor diversification

The 3 months correlation between Huafa and Shanghai is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Huafa Industrial Co and Shanghai Lingyun Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Lingyun Ind 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 Shanghai Lingyun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Lingyun Ind has no effect on the direction of Huafa Industrial i.e., Huafa Industrial and Shanghai Lingyun go up and down completely randomly.

Pair Corralation between Huafa Industrial and Shanghai Lingyun

Assuming the 90 days trading horizon Huafa Industrial Co is expected to generate 0.52 times more return on investment than Shanghai Lingyun. However, Huafa Industrial Co is 1.92 times less risky than Shanghai Lingyun. It trades about 0.2 of its potential returns per unit of risk. Shanghai Lingyun Industries is currently generating about -0.22 per unit of risk. If you would invest  534.00  in Huafa Industrial Co on December 2, 2024 and sell it today you would earn a total of  31.00  from holding Huafa Industrial Co or generate 5.81% return on investment over 90 days.

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

Huafa Industrial Co  vs.  Shanghai Lingyun Industries

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

Shanghai Lingyun Ind

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Lingyun Industries 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Huafa Industrial and Shanghai Lingyun

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

The idea behind Huafa Industrial Co and Shanghai Lingyun Industries 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.