Correlation Between Hunan Tyen and Shanghai Action

Can any of the company-specific risk be diversified away by investing in both Hunan Tyen and Shanghai Action 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 Hunan Tyen and Shanghai Action into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hunan Tyen Machinery and Shanghai Action Education, you can compare the effects of market volatilities on Hunan Tyen and Shanghai Action 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 Hunan Tyen with a short position of Shanghai Action. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hunan Tyen and Shanghai Action.

Diversification Opportunities for Hunan Tyen and Shanghai Action

-0.19

Correlation Coefficient

Hunan Tyen  Shanghai Action

Good diversification

The 3 months correlation between Hunan and Shanghai is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Tyen Machinery and Shanghai Action Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Action Education and Hunan Tyen 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 Hunan Tyen Machinery are associated (or correlated) with Shanghai Action. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Action Education has no effect on the direction of Hunan Tyen i.e., Hunan Tyen and Shanghai Action go up and down completely randomly.

Pair Corralation between Hunan Tyen and Shanghai Action

Assuming the 90 days trading horizon Hunan Tyen Machinery is expected to under-perform the Shanghai Action. In addition to that, Hunan Tyen is 1.87 times more volatile than Shanghai Action Education. It trades about -0.09 of its total potential returns per unit of risk. Shanghai Action Education is currently generating about -0.02 per unit of volatility. If you would invest  3,616  in Shanghai Action Education on October 8, 2024 and sell it today you would lose (58.00) from holding Shanghai Action Education or give up 1.6% of portfolio value over 90 days.

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

Hunan Tyen Machinery  vs.  Shanghai Action Education

Hunan Tyen Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hunan Tyen Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hunan Tyen is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shanghai Action Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Action Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Hunan Tyen and Shanghai Action

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

The idea behind Hunan Tyen Machinery and Shanghai Action Education 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.