Correlation Between Huaibei Mining and Weichai Heavy

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

By analyzing existing cross correlation between Huaibei Mining Holdings and Weichai Heavy Machinery, you can compare the effects of market volatilities on Huaibei Mining and Weichai Heavy 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 Huaibei Mining with a short position of Weichai Heavy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huaibei Mining and Weichai Heavy.

Diversification Opportunities for Huaibei Mining and Weichai Heavy

0.16

Correlation Coefficient

Huaibei Mining  Weichai Heavy

Average diversification

The 3 months correlation between Huaibei and Weichai is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Huaibei Mining Holdings and Weichai Heavy Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weichai Heavy Machinery and Huaibei Mining 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 Huaibei Mining Holdings are associated (or correlated) with Weichai Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weichai Heavy Machinery has no effect on the direction of Huaibei Mining i.e., Huaibei Mining and Weichai Heavy go up and down completely randomly.

Pair Corralation between Huaibei Mining and Weichai Heavy

Assuming the 90 days trading horizon Huaibei Mining is expected to generate 2.99 times less return on investment than Weichai Heavy. But when comparing it to its historical volatility, Huaibei Mining Holdings is 1.53 times less risky than Weichai Heavy. It trades about 0.09 of its potential returns per unit of risk. Weichai Heavy Machinery is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  863.00  in Weichai Heavy Machinery on September 12, 2024 and sell it today you would earn a total of  363.00  from holding Weichai Heavy Machinery or generate 42.06% return on investment over 90 days.

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

Huaibei Mining Holdings  vs.  Weichai Heavy Machinery

Huaibei Mining Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Huaibei Mining Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huaibei Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Weichai Heavy Machinery

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Weichai Heavy Machinery are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Weichai Heavy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Huaibei Mining and Weichai Heavy

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

The idea behind Huaibei Mining Holdings and Weichai Heavy Machinery 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.