Correlation Between Sichuan Hebang and Tongyu Communication

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

By analyzing existing cross correlation between Sichuan Hebang Biotechnology and Tongyu Communication, you can compare the effects of market volatilities on Sichuan Hebang and Tongyu Communication 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 Sichuan Hebang with a short position of Tongyu Communication. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Hebang and Tongyu Communication.

Diversification Opportunities for Sichuan Hebang and Tongyu Communication

0.8

Correlation Coefficient

Sichuan Hebang  Tongyu Communication

Very poor diversification

The 3 months correlation between Sichuan and Tongyu is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Hebang Biotechnology and Tongyu Communication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tongyu Communication and Sichuan Hebang 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 Sichuan Hebang Biotechnology are associated (or correlated) with Tongyu Communication. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tongyu Communication has no effect on the direction of Sichuan Hebang i.e., Sichuan Hebang and Tongyu Communication go up and down completely randomly.

Pair Corralation between Sichuan Hebang and Tongyu Communication

Assuming the 90 days trading horizon Sichuan Hebang Biotechnology is expected to under-perform the Tongyu Communication. But the stock apears to be less risky and, when comparing its historical volatility, Sichuan Hebang Biotechnology is 1.91 times less risky than Tongyu Communication. The stock trades about -0.02 of its potential returns per unit of risk. The Tongyu Communication is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,276  in Tongyu Communication on September 2, 2024 and sell it today you would earn a total of  377.00  from holding Tongyu Communication or generate 29.55% return on investment over 90 days.

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

Sichuan Hebang Biotechnology  vs.  Tongyu Communication

Sichuan Hebang Biote

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Hebang Biotechnology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Hebang sustained solid returns over the last few months and may actually be approaching a breakup point.

Tongyu Communication

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tongyu Communication are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tongyu Communication sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sichuan Hebang and Tongyu Communication

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

The idea behind Sichuan Hebang Biotechnology and Tongyu Communication 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.