Correlation Between Heilongjiang Transport and China Reform

Can any of the company-specific risk be diversified away by investing in both Heilongjiang Transport and China Reform 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 Heilongjiang Transport and China Reform into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Heilongjiang Transport Development and China Reform Health, you can compare the effects of market volatilities on Heilongjiang Transport and China Reform 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 Heilongjiang Transport with a short position of China Reform. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heilongjiang Transport and China Reform.

Diversification Opportunities for Heilongjiang Transport and China Reform

0.25

Correlation Coefficient

Heilongjiang Transport  China Reform

Modest diversification

The 3 months correlation between Heilongjiang and China is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Heilongjiang Transport Develop and China Reform Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Reform Health and Heilongjiang Transport 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 Heilongjiang Transport Development are associated (or correlated) with China Reform. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Reform Health has no effect on the direction of Heilongjiang Transport i.e., Heilongjiang Transport and China Reform go up and down completely randomly.

Pair Corralation between Heilongjiang Transport and China Reform

Assuming the 90 days trading horizon Heilongjiang Transport Development is expected to under-perform the China Reform. But the stock apears to be less risky and, when comparing its historical volatility, Heilongjiang Transport Development is 1.21 times less risky than China Reform. The stock trades about -0.02 of its potential returns per unit of risk. The China Reform Health is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,175  in China Reform Health on October 9, 2024 and sell it today you would lose (166.00) from holding China Reform Health or give up 14.13% of portfolio value over 90 days.

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

Heilongjiang Transport Develop  vs.  China Reform Health

Heilongjiang Transport

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Heilongjiang Transport Development are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Heilongjiang Transport is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

China Reform Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Reform Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, China Reform is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Heilongjiang Transport and China Reform

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

The idea behind Heilongjiang Transport Development and China Reform Health 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.