Correlation Between Datang HuaYin and Industrial

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

By analyzing existing cross correlation between Datang HuaYin Electric and Industrial and Commercial, you can compare the effects of market volatilities on Datang HuaYin and Industrial 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 Datang HuaYin with a short position of Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Datang HuaYin and Industrial.

Diversification Opportunities for Datang HuaYin and Industrial

0.7

Correlation Coefficient

Datang HuaYin  Industrial

Poor diversification

The 3 months correlation between Datang and Industrial is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Datang HuaYin Electric and Industrial and Commercial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial and Commercial and Datang HuaYin 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 Datang HuaYin Electric are associated (or correlated) with Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial and Commercial has no effect on the direction of Datang HuaYin i.e., Datang HuaYin and Industrial go up and down completely randomly.

Pair Corralation between Datang HuaYin and Industrial

Assuming the 90 days trading horizon Datang HuaYin is expected to generate 1.17 times less return on investment than Industrial. In addition to that, Datang HuaYin is 2.07 times more volatile than Industrial and Commercial. It trades about 0.11 of its total potential returns per unit of risk. Industrial and Commercial is currently generating about 0.28 per unit of volatility. If you would invest  619.00  in Industrial and Commercial on September 19, 2024 and sell it today you would earn a total of  40.00  from holding Industrial and Commercial or generate 6.46% return on investment over 90 days.

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

Datang HuaYin Electric  vs.  Industrial and Commercial

Datang HuaYin Electric

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Datang HuaYin Electric are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Datang HuaYin sustained solid returns over the last few months and may actually be approaching a breakup point.

Industrial and Commercial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Datang HuaYin and Industrial

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

The idea behind Datang HuaYin Electric and Industrial and Commercial 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.