Correlation Between Tibet Huayu and Guangdong Shenglu

Can any of the company-specific risk be diversified away by investing in both Tibet Huayu and Guangdong Shenglu 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 Guangdong Shenglu 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 Guangdong Shenglu Telecommunication, you can compare the effects of market volatilities on Tibet Huayu and Guangdong Shenglu 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 Guangdong Shenglu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tibet Huayu and Guangdong Shenglu.

Diversification Opportunities for Tibet Huayu and Guangdong Shenglu

0.9

Correlation Coefficient

Tibet Huayu  Guangdong Shenglu

Almost no diversification

The 3 months correlation between Tibet and Guangdong is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Tibet Huayu Mining and Guangdong Shenglu Telecommunic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Shenglu 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 Guangdong Shenglu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Shenglu has no effect on the direction of Tibet Huayu i.e., Tibet Huayu and Guangdong Shenglu go up and down completely randomly.

Pair Corralation between Tibet Huayu and Guangdong Shenglu

Assuming the 90 days trading horizon Tibet Huayu Mining is expected to generate 1.32 times more return on investment than Guangdong Shenglu. However, Tibet Huayu is 1.32 times more volatile than Guangdong Shenglu Telecommunication. It trades about 0.07 of its potential returns per unit of risk. Guangdong Shenglu Telecommunication is currently generating about 0.08 per unit of risk. If you would invest  1,253  in Tibet Huayu Mining on September 21, 2024 and sell it today you would earn a total of  111.00  from holding Tibet Huayu Mining or generate 8.86% return on investment over 90 days.

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

Tibet Huayu Mining  vs.  Guangdong Shenglu Telecommunic

Tibet Huayu Mining

Risk-Adjusted Performance

10 of 100

OK

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

Guangdong Shenglu

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Shenglu Telecommunication are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Shenglu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tibet Huayu and Guangdong Shenglu

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

The idea behind Tibet Huayu Mining and Guangdong Shenglu Telecommunication 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.