Correlation Between Tibet Huayu and Zhongshan Broad

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

By analyzing existing cross correlation between Tibet Huayu Mining and Zhongshan Broad Ocean Motor, you can compare the effects of market volatilities on Tibet Huayu and Zhongshan Broad 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 Tibet Huayu with a short position of Zhongshan Broad. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tibet Huayu and Zhongshan Broad.

Diversification Opportunities for Tibet Huayu and Zhongshan Broad

0.68

Correlation Coefficient

Tibet Huayu  Zhongshan Broad

Poor diversification

The 3 months correlation between Tibet and Zhongshan is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Tibet Huayu Mining and Zhongshan Broad Ocean Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhongshan Broad Ocean and Tibet Huayu 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 Tibet Huayu Mining are associated (or correlated) with Zhongshan Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhongshan Broad Ocean has no effect on the direction of Tibet Huayu i.e., Tibet Huayu and Zhongshan Broad go up and down completely randomly.

Pair Corralation between Tibet Huayu and Zhongshan Broad

Assuming the 90 days trading horizon Tibet Huayu Mining is expected to under-perform the Zhongshan Broad. But the stock apears to be less risky and, when comparing its historical volatility, Tibet Huayu Mining is 1.13 times less risky than Zhongshan Broad. The stock trades about -0.38 of its potential returns per unit of risk. The Zhongshan Broad Ocean Motor is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  583.00  in Zhongshan Broad Ocean Motor on October 6, 2024 and sell it today you would lose (46.00) from holding Zhongshan Broad Ocean Motor or give up 7.89% of portfolio value over 90 days.

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

Tibet Huayu Mining  vs.  Zhongshan Broad Ocean Motor

Tibet Huayu Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tibet Huayu Mining 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.

Zhongshan Broad Ocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zhongshan Broad Ocean Motor 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 Tibet Huayu and Zhongshan Broad

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

The idea behind Tibet Huayu Mining and Zhongshan Broad Ocean Motor 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.