Correlation Between Hainan HNA and Guangzhou Hongli

Can any of the company-specific risk be diversified away by investing in both Hainan HNA and Guangzhou Hongli 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 Hainan HNA and Guangzhou Hongli into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hainan HNA Infrastructure and Guangzhou Hongli Opto, you can compare the effects of market volatilities on Hainan HNA and Guangzhou Hongli 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 Hainan HNA with a short position of Guangzhou Hongli. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hainan HNA and Guangzhou Hongli.

Diversification Opportunities for Hainan HNA and Guangzhou Hongli

0.82

Correlation Coefficient

Hainan HNA  Guangzhou Hongli

Very poor diversification

The 3 months correlation between Hainan and Guangzhou is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Hainan HNA Infrastructure and Guangzhou Hongli Opto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Hongli Opto and Hainan HNA 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 Hainan HNA Infrastructure are associated (or correlated) with Guangzhou Hongli. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Hongli Opto has no effect on the direction of Hainan HNA i.e., Hainan HNA and Guangzhou Hongli go up and down completely randomly.

Pair Corralation between Hainan HNA and Guangzhou Hongli

Assuming the 90 days trading horizon Hainan HNA is expected to generate 2.51 times less return on investment than Guangzhou Hongli. In addition to that, Hainan HNA is 1.12 times more volatile than Guangzhou Hongli Opto. It trades about 0.04 of its total potential returns per unit of risk. Guangzhou Hongli Opto is currently generating about 0.12 per unit of volatility. If you would invest  769.00  in Guangzhou Hongli Opto on September 22, 2024 and sell it today you would earn a total of  46.00  from holding Guangzhou Hongli Opto or generate 5.98% return on investment over 90 days.

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

Hainan HNA Infrastructure  vs.  Guangzhou Hongli Opto

Hainan HNA Infrastructure

Risk-Adjusted Performance

10 of 100

OK

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

Guangzhou Hongli Opto

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Hongli Opto are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Hongli sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hainan HNA and Guangzhou Hongli

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

The idea behind Hainan HNA Infrastructure and Guangzhou Hongli Opto 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.