Correlation Between HeBei Jinniu and Huadong Medicine

Can any of the company-specific risk be diversified away by investing in both HeBei Jinniu and Huadong Medicine 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 HeBei Jinniu and Huadong Medicine into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HeBei Jinniu Chemical and Huadong Medicine Co, you can compare the effects of market volatilities on HeBei Jinniu and Huadong Medicine 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 HeBei Jinniu with a short position of Huadong Medicine. Check out your portfolio center. Please also check ongoing floating volatility patterns of HeBei Jinniu and Huadong Medicine.

Diversification Opportunities for HeBei Jinniu and Huadong Medicine

0.82

Correlation Coefficient

HeBei Jinniu  Huadong Medicine

Very poor diversification

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

Pair Corralation between HeBei Jinniu and Huadong Medicine

Assuming the 90 days trading horizon HeBei Jinniu Chemical is expected to under-perform the Huadong Medicine. In addition to that, HeBei Jinniu is 1.78 times more volatile than Huadong Medicine Co. It trades about -0.43 of its total potential returns per unit of risk. Huadong Medicine Co is currently generating about -0.47 per unit of volatility. If you would invest  3,770  in Huadong Medicine Co on October 7, 2024 and sell it today you would lose (477.00) from holding Huadong Medicine Co or give up 12.65% of portfolio value over 90 days.

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

HeBei Jinniu Chemical  vs.  Huadong Medicine Co

HeBei Jinniu Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HeBei Jinniu Chemical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, HeBei Jinniu is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Huadong Medicine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huadong Medicine 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 HeBei Jinniu and Huadong Medicine

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

The idea behind HeBei Jinniu Chemical and Huadong Medicine 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.