Correlation Between Industrial and Hua Xia

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

Diversification Opportunities for Industrial and Hua Xia

0.92

Correlation Coefficient

Industrial  Hua Xia

Almost no diversification

The 3 months correlation between Industrial and Hua is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Hua Xia Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hua Xia Bank 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 Hua Xia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hua Xia Bank has no effect on the direction of Industrial i.e., Industrial and Hua Xia go up and down completely randomly.

Pair Corralation between Industrial and Hua Xia

Assuming the 90 days trading horizon Industrial is expected to generate 1.84 times less return on investment than Hua Xia. But when comparing it to its historical volatility, Industrial and Commercial is 1.44 times less risky than Hua Xia. It trades about 0.15 of its potential returns per unit of risk. Hua Xia Bank is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  613.00  in Hua Xia Bank on September 13, 2024 and sell it today you would earn a total of  159.00  from holding Hua Xia Bank or generate 25.94% return on investment over 90 days.

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

Industrial and Commercial  vs.  Hua Xia Bank

Industrial and Commercial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Hua Xia Bank

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Xia Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hua Xia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrial and Hua Xia

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

The idea behind Industrial and Commercial and Hua Xia Bank 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.