Correlation Between Industrial and Hainan Development

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

By analyzing existing cross correlation between Industrial and Commercial and Hainan Development Holdings, you can compare the effects of market volatilities on Industrial and Hainan Development 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 Industrial with a short position of Hainan Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial and Hainan Development.

Diversification Opportunities for Industrial and Hainan Development

0.23

Correlation Coefficient

Industrial  Hainan Development

Modest diversification

The 3 months correlation between Industrial and Hainan is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Hainan Development Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Development and Industrial 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 Industrial and Commercial are associated (or correlated) with Hainan Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Development has no effect on the direction of Industrial i.e., Industrial and Hainan Development go up and down completely randomly.

Pair Corralation between Industrial and Hainan Development

Assuming the 90 days trading horizon Industrial and Commercial is expected to generate 0.47 times more return on investment than Hainan Development. However, Industrial and Commercial is 2.15 times less risky than Hainan Development. It trades about -0.13 of its potential returns per unit of risk. Hainan Development Holdings is currently generating about -0.13 per unit of risk. If you would invest  693.00  in Industrial and Commercial on October 27, 2024 and sell it today you would lose (26.00) from holding Industrial and Commercial or give up 3.75% of portfolio value over 90 days.

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

Industrial and Commercial  vs.  Hainan Development Holdings

Industrial and Commercial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Hainan Development

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Development Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan Development sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial and Hainan Development

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

The idea behind Industrial and Commercial and Hainan Development Holdings 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.