Correlation Between Hainan Haiqi and Yingde Greatchem

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

By analyzing existing cross correlation between Hainan Haiqi Transportation and Yingde Greatchem Chemicals, you can compare the effects of market volatilities on Hainan Haiqi and Yingde Greatchem 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 Hainan Haiqi with a short position of Yingde Greatchem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hainan Haiqi and Yingde Greatchem.

Diversification Opportunities for Hainan Haiqi and Yingde Greatchem

0.94

Correlation Coefficient

Hainan Haiqi  Yingde Greatchem

Almost no diversification

The 3 months correlation between Hainan and Yingde is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Haiqi Transportation and Yingde Greatchem Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yingde Greatchem Che and Hainan Haiqi 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 Hainan Haiqi Transportation are associated (or correlated) with Yingde Greatchem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yingde Greatchem Che has no effect on the direction of Hainan Haiqi i.e., Hainan Haiqi and Yingde Greatchem go up and down completely randomly.

Pair Corralation between Hainan Haiqi and Yingde Greatchem

Assuming the 90 days trading horizon Hainan Haiqi Transportation is expected to generate 0.99 times more return on investment than Yingde Greatchem. However, Hainan Haiqi Transportation is 1.01 times less risky than Yingde Greatchem. It trades about 0.17 of its potential returns per unit of risk. Yingde Greatchem Chemicals is currently generating about 0.12 per unit of risk. If you would invest  1,538  in Hainan Haiqi Transportation on September 2, 2024 and sell it today you would earn a total of  478.00  from holding Hainan Haiqi Transportation or generate 31.08% return on investment over 90 days.

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

Hainan Haiqi Transportation  vs.  Yingde Greatchem Chemicals

Hainan Haiqi Transpo

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Haiqi Transportation are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan Haiqi sustained solid returns over the last few months and may actually be approaching a breakup point.

Yingde Greatchem Che

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Hainan Haiqi and Yingde Greatchem

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

The idea behind Hainan Haiqi Transportation and Yingde Greatchem Chemicals 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.