Correlation Between Industrial and Tianjin Hi-Tech

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

Diversification Opportunities for Industrial and Tianjin Hi-Tech

-0.43

Correlation Coefficient

Industrial  Tianjin Hi-Tech

Very good diversification

The 3 months correlation between Industrial and Tianjin is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Tianjin Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Hi Tech 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 Tianjin Hi-Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Hi Tech has no effect on the direction of Industrial i.e., Industrial and Tianjin Hi-Tech go up and down completely randomly.

Pair Corralation between Industrial and Tianjin Hi-Tech

Assuming the 90 days trading horizon Industrial is expected to generate 1.43 times less return on investment than Tianjin Hi-Tech. But when comparing it to its historical volatility, Industrial and Commercial is 1.34 times less risky than Tianjin Hi-Tech. It trades about 0.13 of its potential returns per unit of risk. Tianjin Hi Tech Development is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  293.00  in Tianjin Hi Tech Development on December 4, 2024 and sell it today you would earn a total of  10.00  from holding Tianjin Hi Tech Development or generate 3.41% return on investment over 90 days.

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

Industrial and Commercial  vs.  Tianjin Hi Tech Development

Industrial and Commercial

Risk-Adjusted Performance

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 April 2025.

Tianjin Hi Tech

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tianjin Hi Tech Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tianjin Hi-Tech is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Industrial and Tianjin Hi-Tech

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

The idea behind Industrial and Commercial and Tianjin Hi Tech Development 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..