Correlation Between Sichuan Chuantou and Hainan Expressway

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

By analyzing existing cross correlation between Sichuan Chuantou Energy and Hainan Expressway Co, you can compare the effects of market volatilities on Sichuan Chuantou and Hainan Expressway 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 Sichuan Chuantou with a short position of Hainan Expressway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Chuantou and Hainan Expressway.

Diversification Opportunities for Sichuan Chuantou and Hainan Expressway

0.27

Correlation Coefficient

Sichuan Chuantou  Hainan Expressway

Modest diversification

The 3 months correlation between Sichuan and Hainan is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Chuantou Energy and Hainan Expressway Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Expressway and Sichuan Chuantou 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 Sichuan Chuantou Energy are associated (or correlated) with Hainan Expressway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Expressway has no effect on the direction of Sichuan Chuantou i.e., Sichuan Chuantou and Hainan Expressway go up and down completely randomly.

Pair Corralation between Sichuan Chuantou and Hainan Expressway

Assuming the 90 days trading horizon Sichuan Chuantou Energy is expected to generate 0.34 times more return on investment than Hainan Expressway. However, Sichuan Chuantou Energy is 2.98 times less risky than Hainan Expressway. It trades about -0.09 of its potential returns per unit of risk. Hainan Expressway Co is currently generating about -0.04 per unit of risk. If you would invest  1,715  in Sichuan Chuantou Energy on December 26, 2024 and sell it today you would lose (109.00) from holding Sichuan Chuantou Energy or give up 6.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Sichuan Chuantou Energy  vs.  Hainan Expressway Co

Sichuan Chuantou Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sichuan Chuantou Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Hainan Expressway

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hainan Expressway Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Sichuan Chuantou and Hainan Expressway

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

The idea behind Sichuan Chuantou Energy and Hainan Expressway 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.