Correlation Between Heilongjiang Transport and Shandong Hongchuang

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

Diversification Opportunities for Heilongjiang Transport and Shandong Hongchuang

0.71

Correlation Coefficient

Heilongjiang Transport  Shandong Hongchuang

Poor diversification

The 3 months correlation between Heilongjiang and Shandong is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Heilongjiang Transport Develop and Shandong Hongchuang Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Hongchuang 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 Shandong Hongchuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Hongchuang has no effect on the direction of Heilongjiang Transport i.e., Heilongjiang Transport and Shandong Hongchuang go up and down completely randomly.

Pair Corralation between Heilongjiang Transport and Shandong Hongchuang

Assuming the 90 days trading horizon Heilongjiang Transport Development is expected to under-perform the Shandong Hongchuang. In addition to that, Heilongjiang Transport is 1.0 times more volatile than Shandong Hongchuang Aluminum. It trades about -0.04 of its total potential returns per unit of risk. Shandong Hongchuang Aluminum is currently generating about 0.43 per unit of volatility. If you would invest  686.00  in Shandong Hongchuang Aluminum on September 28, 2024 and sell it today you would earn a total of  211.00  from holding Shandong Hongchuang Aluminum or generate 30.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Heilongjiang Transport Develop  vs.  Shandong Hongchuang Aluminum

Heilongjiang Transport

Risk-Adjusted Performance

0 of 100

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 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.

Shandong Hongchuang

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Hongchuang Aluminum are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Hongchuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heilongjiang Transport and Shandong Hongchuang

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

The idea behind Heilongjiang Transport Development and Shandong Hongchuang Aluminum 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.