Correlation Between Zhejiang Daily and Hengdian Entertainment

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Can any of the company-specific risk be diversified away by investing in both Zhejiang Daily and Hengdian Entertainment 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 Zhejiang Daily and Hengdian Entertainment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Zhejiang Daily Media and Hengdian Entertainment Co, you can compare the effects of market volatilities on Zhejiang Daily and Hengdian Entertainment 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 Zhejiang Daily with a short position of Hengdian Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Daily and Hengdian Entertainment.

Diversification Opportunities for Zhejiang Daily and Hengdian Entertainment

ZhejiangHengdianDiversified AwayZhejiangHengdianDiversified Away100%
0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Zhejiang and Hengdian is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Daily Media and Hengdian Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengdian Entertainment and Zhejiang Daily 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 Zhejiang Daily Media are associated (or correlated) with Hengdian Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengdian Entertainment has no effect on the direction of Zhejiang Daily i.e., Zhejiang Daily and Hengdian Entertainment go up and down completely randomly.

Pair Corralation between Zhejiang Daily and Hengdian Entertainment

Assuming the 90 days trading horizon Zhejiang Daily is expected to generate 1.43 times less return on investment than Hengdian Entertainment. But when comparing it to its historical volatility, Zhejiang Daily Media is 1.3 times less risky than Hengdian Entertainment. It trades about 0.19 of its potential returns per unit of risk. Hengdian Entertainment Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  985.00  in Hengdian Entertainment Co on September 23, 2024 and sell it today you would earn a total of  577.00  from holding Hengdian Entertainment Co or generate 58.58% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Zhejiang Daily Media  vs.  Hengdian Entertainment Co

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 0102030405060
JavaScript chart by amCharts 3.21.15600633 603103
       Timeline  
Zhejiang Daily Media 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Daily Media are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Daily sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec88.599.51010.51111.5
Hengdian Entertainment 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Hengdian Entertainment Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengdian Entertainment sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec101112131415161718

Zhejiang Daily and Hengdian Entertainment Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-9.25-6.93-4.61-2.280.04242.545.097.6310.17 0.0200.0250.0300.0350.040
JavaScript chart by amCharts 3.21.15600633 603103
       Returns  

Pair Trading with Zhejiang Daily and Hengdian Entertainment

The main advantage of trading using opposite Zhejiang Daily and Hengdian Entertainment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zhejiang Daily position performs unexpectedly, Hengdian Entertainment 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 Hengdian Entertainment will offset losses from the drop in Hengdian Entertainment's long position.
The idea behind Zhejiang Daily Media and Hengdian Entertainment Co 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.

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