Correlation Between Hunan Tyen and Shanghai CEO

Can any of the company-specific risk be diversified away by investing in both Hunan Tyen and Shanghai CEO 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 CEO 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 CEO Environmental, you can compare the effects of market volatilities on Hunan Tyen and Shanghai CEO 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 CEO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hunan Tyen and Shanghai CEO.

Diversification Opportunities for Hunan Tyen and Shanghai CEO

0.73

Correlation Coefficient

Hunan Tyen  Shanghai CEO

Poor diversification

The 3 months correlation between Hunan and Shanghai is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Tyen Machinery and Shanghai CEO Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai CEO Environ 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 CEO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai CEO Environ has no effect on the direction of Hunan Tyen i.e., Hunan Tyen and Shanghai CEO go up and down completely randomly.

Pair Corralation between Hunan Tyen and Shanghai CEO

Assuming the 90 days trading horizon Hunan Tyen is expected to generate 60.07 times less return on investment than Shanghai CEO. But when comparing it to its historical volatility, Hunan Tyen Machinery is 15.39 times less risky than Shanghai CEO. It trades about 0.01 of its potential returns per unit of risk. Shanghai CEO Environmental is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,121  in Shanghai CEO Environmental on October 4, 2024 and sell it today you would lose (1,290) from holding Shanghai CEO Environmental or give up 60.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Hunan Tyen Machinery  vs.  Shanghai CEO Environmental

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 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.

Shanghai CEO Environ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai CEO Environmental 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 CEO

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

The idea behind Hunan Tyen Machinery and Shanghai CEO Environmental 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.