Correlation Between Heilongjiang Transport and Ningbo Fangzheng

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

Diversification Opportunities for Heilongjiang Transport and Ningbo Fangzheng

0.84

Correlation Coefficient

Heilongjiang Transport  Ningbo Fangzheng

Very poor diversification

The 3 months correlation between Heilongjiang and Ningbo is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Heilongjiang Transport Develop 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 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 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 Heilongjiang Transport i.e., Heilongjiang Transport and Ningbo Fangzheng go up and down completely randomly.

Pair Corralation between Heilongjiang Transport and Ningbo Fangzheng

Assuming the 90 days trading horizon Heilongjiang Transport is expected to generate 1.08 times less return on investment than Ningbo Fangzheng. But when comparing it to its historical volatility, Heilongjiang Transport Development is 1.66 times less risky than Ningbo Fangzheng. It trades about 0.18 of its potential returns per unit of risk. Ningbo Fangzheng Automobile is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,295  in Ningbo Fangzheng Automobile on September 5, 2024 and sell it today you would earn a total of  354.00  from holding Ningbo Fangzheng Automobile or generate 27.34% return on investment over 90 days.

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

Heilongjiang Transport Develop  vs.  Ningbo Fangzheng Automobile

Heilongjiang Transport

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heilongjiang Transport Development are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Heilongjiang Transport sustained solid returns over the last few months and may actually be approaching a breakup point.

Ningbo Fangzheng Aut

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Fangzheng Automobile are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Fangzheng sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heilongjiang Transport and Ningbo Fangzheng

The main advantage of trading using opposite Heilongjiang Transport and Ningbo Fangzheng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heilongjiang Transport 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 Heilongjiang Transport Development 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.