Correlation Between Heilongjiang Transport and Fuzhou Rockchip

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

Diversification Opportunities for Heilongjiang Transport and Fuzhou Rockchip

0.88

Correlation Coefficient

Heilongjiang Transport  Fuzhou Rockchip

Very poor diversification

The 3 months correlation between Heilongjiang and Fuzhou is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Heilongjiang Transport Develop and Fuzhou Rockchip Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuzhou Rockchip Elec 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 Fuzhou Rockchip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuzhou Rockchip Elec has no effect on the direction of Heilongjiang Transport i.e., Heilongjiang Transport and Fuzhou Rockchip go up and down completely randomly.

Pair Corralation between Heilongjiang Transport and Fuzhou Rockchip

Assuming the 90 days trading horizon Heilongjiang Transport is expected to generate 1.94 times less return on investment than Fuzhou Rockchip. But when comparing it to its historical volatility, Heilongjiang Transport Development is 1.48 times less risky than Fuzhou Rockchip. It trades about 0.18 of its potential returns per unit of risk. Fuzhou Rockchip Electronics is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  5,126  in Fuzhou Rockchip Electronics on September 5, 2024 and sell it today you would earn a total of  3,241  from holding Fuzhou Rockchip Electronics or generate 63.23% 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.  Fuzhou Rockchip Electronics

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.

Fuzhou Rockchip Elec

Risk-Adjusted Performance

18 of 100

Solid

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

Pair Trading with Heilongjiang Transport and Fuzhou Rockchip

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

The idea behind Heilongjiang Transport Development and Fuzhou Rockchip Electronics 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.