Correlation Between Hang Xiao and Fujian Nanwang

Can any of the company-specific risk be diversified away by investing in both Hang Xiao and Fujian Nanwang 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 Hang Xiao and Fujian Nanwang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hang Xiao Steel and Fujian Nanwang Environment, you can compare the effects of market volatilities on Hang Xiao and Fujian Nanwang 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 Hang Xiao with a short position of Fujian Nanwang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hang Xiao and Fujian Nanwang.

Diversification Opportunities for Hang Xiao and Fujian Nanwang

0.87

Correlation Coefficient

Hang Xiao  Fujian Nanwang

Very poor diversification

The 3 months correlation between Hang and Fujian is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Hang Xiao Steel and Fujian Nanwang Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fujian Nanwang Envir and Hang Xiao 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 Hang Xiao Steel are associated (or correlated) with Fujian Nanwang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fujian Nanwang Envir has no effect on the direction of Hang Xiao i.e., Hang Xiao and Fujian Nanwang go up and down completely randomly.

Pair Corralation between Hang Xiao and Fujian Nanwang

Assuming the 90 days trading horizon Hang Xiao Steel is expected to under-perform the Fujian Nanwang. In addition to that, Hang Xiao is 1.63 times more volatile than Fujian Nanwang Environment. It trades about -0.08 of its total potential returns per unit of risk. Fujian Nanwang Environment is currently generating about 0.35 per unit of volatility. If you would invest  1,162  in Fujian Nanwang Environment on September 22, 2024 and sell it today you would earn a total of  131.00  from holding Fujian Nanwang Environment or generate 11.27% return on investment over 90 days.

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

Hang Xiao Steel  vs.  Fujian Nanwang Environment

Hang Xiao Steel

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hang Xiao Steel are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hang Xiao sustained solid returns over the last few months and may actually be approaching a breakup point.

Fujian Nanwang Envir

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fujian Nanwang Environment are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fujian Nanwang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hang Xiao and Fujian Nanwang

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

The idea behind Hang Xiao Steel and Fujian Nanwang Environment 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.