Correlation Between Hubei Geoway and Lianhe Chemical

Can any of the company-specific risk be diversified away by investing in both Hubei Geoway and Lianhe Chemical 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 Hubei Geoway and Lianhe Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hubei Geoway Investment and Lianhe Chemical Technology, you can compare the effects of market volatilities on Hubei Geoway and Lianhe Chemical 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 Hubei Geoway with a short position of Lianhe Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Geoway and Lianhe Chemical.

Diversification Opportunities for Hubei Geoway and Lianhe Chemical

0.29

Correlation Coefficient

Hubei Geoway  Lianhe Chemical

Modest diversification

The 3 months correlation between Hubei and Lianhe is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Geoway Investment and Lianhe Chemical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lianhe Chemical Tech and Hubei Geoway 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 Hubei Geoway Investment are associated (or correlated) with Lianhe Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lianhe Chemical Tech has no effect on the direction of Hubei Geoway i.e., Hubei Geoway and Lianhe Chemical go up and down completely randomly.

Pair Corralation between Hubei Geoway and Lianhe Chemical

Assuming the 90 days trading horizon Hubei Geoway Investment is expected to generate 1.25 times more return on investment than Lianhe Chemical. However, Hubei Geoway is 1.25 times more volatile than Lianhe Chemical Technology. It trades about 0.53 of its potential returns per unit of risk. Lianhe Chemical Technology is currently generating about -0.09 per unit of risk. If you would invest  147.00  in Hubei Geoway Investment on September 19, 2024 and sell it today you would earn a total of  53.00  from holding Hubei Geoway Investment or generate 36.05% return on investment over 90 days.

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

Hubei Geoway Investment  vs.  Lianhe Chemical Technology

Hubei Geoway Investment

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Geoway Investment are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Geoway sustained solid returns over the last few months and may actually be approaching a breakup point.

Lianhe Chemical Tech

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lianhe Chemical Technology are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lianhe Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hubei Geoway and Lianhe Chemical

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

The idea behind Hubei Geoway Investment and Lianhe Chemical Technology 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.