Correlation Between Tibet Huayu and Ningbo Fangzheng

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

Diversification Opportunities for Tibet Huayu and Ningbo Fangzheng

0.44

Correlation Coefficient

Tibet Huayu  Ningbo Fangzheng

Very weak diversification

The 3 months correlation between Tibet and Ningbo is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Tibet Huayu Mining and Ningbo Fangzheng Automobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Fangzheng Aut 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 Ningbo Fangzheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Fangzheng Aut has no effect on the direction of Tibet Huayu i.e., Tibet Huayu and Ningbo Fangzheng go up and down completely randomly.

Pair Corralation between Tibet Huayu and Ningbo Fangzheng

Assuming the 90 days trading horizon Tibet Huayu Mining is expected to under-perform the Ningbo Fangzheng. But the stock apears to be less risky and, when comparing its historical volatility, Tibet Huayu Mining is 1.52 times less risky than Ningbo Fangzheng. The stock trades about -0.38 of its potential returns per unit of risk. The Ningbo Fangzheng Automobile is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  1,720  in Ningbo Fangzheng Automobile on October 6, 2024 and sell it today you would lose (200.00) from holding Ningbo Fangzheng Automobile or give up 11.63% of portfolio value over 90 days.

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

Tibet Huayu Mining  vs.  Ningbo Fangzheng Automobile

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.

Ningbo Fangzheng Aut

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ningbo Fangzheng Automobile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tibet Huayu and Ningbo Fangzheng

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

The idea behind Tibet Huayu Mining and Ningbo Fangzheng Automobile 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.