Correlation Between Hainan Haiqi and Hengdian Entertainment

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

Diversification Opportunities for Hainan Haiqi and Hengdian Entertainment

0.69

Correlation Coefficient

Hainan Haiqi  Hengdian Entertainment

Poor diversification

The 3 months correlation between Hainan and Hengdian is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Haiqi Transportation and Hengdian Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengdian Entertainment 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 Hengdian Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengdian Entertainment has no effect on the direction of Hainan Haiqi i.e., Hainan Haiqi and Hengdian Entertainment go up and down completely randomly.

Pair Corralation between Hainan Haiqi and Hengdian Entertainment

Assuming the 90 days trading horizon Hainan Haiqi Transportation is expected to under-perform the Hengdian Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, Hainan Haiqi Transportation is 1.33 times less risky than Hengdian Entertainment. The stock trades about -0.15 of its potential returns per unit of risk. The Hengdian Entertainment Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,354  in Hengdian Entertainment Co on October 7, 2024 and sell it today you would lose (40.00) from holding Hengdian Entertainment Co or give up 2.95% of portfolio value over 90 days.

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

Hainan Haiqi Transportation  vs.  Hengdian Entertainment Co

Hainan Haiqi Transpo

Risk-Adjusted Performance

0 of 100

Very Weak

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

Hengdian Entertainment

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hengdian Entertainment Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hengdian Entertainment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hainan Haiqi and Hengdian Entertainment

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

The idea behind Hainan Haiqi Transportation and Hengdian Entertainment Co 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.