Correlation Between Sichuan Hebang and Guangzhou Fangbang

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

Diversification Opportunities for Sichuan Hebang and Guangzhou Fangbang

0.58

Correlation Coefficient

Sichuan Hebang  Guangzhou Fangbang

Very weak diversification

The 3 months correlation between Sichuan and Guangzhou is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Hebang Biotechnology and Guangzhou Fangbang Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Fangbang 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 Guangzhou Fangbang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Fangbang has no effect on the direction of Sichuan Hebang i.e., Sichuan Hebang and Guangzhou Fangbang go up and down completely randomly.

Pair Corralation between Sichuan Hebang and Guangzhou Fangbang

Assuming the 90 days trading horizon Sichuan Hebang Biotechnology is expected to generate 0.68 times more return on investment than Guangzhou Fangbang. However, Sichuan Hebang Biotechnology is 1.48 times less risky than Guangzhou Fangbang. It trades about -0.04 of its potential returns per unit of risk. Guangzhou Fangbang Electronics is currently generating about -0.05 per unit of risk. If you would invest  221.00  in Sichuan Hebang Biotechnology on October 3, 2024 and sell it today you would lose (17.00) from holding Sichuan Hebang Biotechnology or give up 7.69% of portfolio value over 90 days.

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

Sichuan Hebang Biotechnology  vs.  Guangzhou Fangbang Electronics

Sichuan Hebang Biote

Risk-Adjusted Performance

0 of 100

Very Weak

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

Guangzhou Fangbang

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangzhou Fangbang Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Sichuan Hebang and Guangzhou Fangbang

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

The idea behind Sichuan Hebang Biotechnology and Guangzhou Fangbang Electronics 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 Transaction History module to view history of all your transactions and understand their impact on performance.