Correlation Between Heilongjiang Transport and China Merchants

Can any of the company-specific risk be diversified away by investing in both Heilongjiang Transport and China Merchants 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 Merchants 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 Merchants Shekou, you can compare the effects of market volatilities on Heilongjiang Transport and China Merchants 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 Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heilongjiang Transport and China Merchants.

Diversification Opportunities for Heilongjiang Transport and China Merchants

-0.2

Correlation Coefficient

Heilongjiang Transport  China Merchants

Good diversification

The 3 months correlation between Heilongjiang and China is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Heilongjiang Transport Develop and China Merchants Shekou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Shekou 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 Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Shekou has no effect on the direction of Heilongjiang Transport i.e., Heilongjiang Transport and China Merchants go up and down completely randomly.

Pair Corralation between Heilongjiang Transport and China Merchants

Assuming the 90 days trading horizon Heilongjiang Transport Development is expected to under-perform the China Merchants. But the stock apears to be less risky and, when comparing its historical volatility, Heilongjiang Transport Development is 1.16 times less risky than China Merchants. The stock trades about -0.1 of its potential returns per unit of risk. The China Merchants Shekou is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,020  in China Merchants Shekou on December 28, 2024 and sell it today you would lose (72.00) from holding China Merchants Shekou or give up 7.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Heilongjiang Transport Develop  vs.  China Merchants Shekou

Heilongjiang Transport

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heilongjiang Transport Development 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.

China Merchants Shekou

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Merchants Shekou 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 Heilongjiang Transport and China Merchants

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

The idea behind Heilongjiang Transport Development and China Merchants Shekou 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.