Correlation Between Western Mining and Guangzhou Hongli

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

By analyzing existing cross correlation between Western Mining Co and Guangzhou Hongli Opto, you can compare the effects of market volatilities on Western Mining and Guangzhou Hongli 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 Western Mining with a short position of Guangzhou Hongli. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Mining and Guangzhou Hongli.

Diversification Opportunities for Western Mining and Guangzhou Hongli

-0.28

Correlation Coefficient

Western Mining  Guangzhou Hongli

Very good diversification

The 3 months correlation between Western and Guangzhou is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Western Mining Co and Guangzhou Hongli Opto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Hongli Opto and Western 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 Western Mining Co are associated (or correlated) with Guangzhou Hongli. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Hongli Opto has no effect on the direction of Western Mining i.e., Western Mining and Guangzhou Hongli go up and down completely randomly.

Pair Corralation between Western Mining and Guangzhou Hongli

Assuming the 90 days trading horizon Western Mining Co is expected to under-perform the Guangzhou Hongli. But the stock apears to be less risky and, when comparing its historical volatility, Western Mining Co is 1.8 times less risky than Guangzhou Hongli. The stock trades about -0.24 of its potential returns per unit of risk. The Guangzhou Hongli Opto is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  746.00  in Guangzhou Hongli Opto on October 6, 2024 and sell it today you would lose (56.00) from holding Guangzhou Hongli Opto or give up 7.51% of portfolio value over 90 days.

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

Western Mining Co  vs.  Guangzhou Hongli Opto

Western Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Mining Co 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.

Guangzhou Hongli Opto

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Hongli Opto 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 Western Mining and Guangzhou Hongli

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

The idea behind Western Mining Co and Guangzhou Hongli Opto 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.