Correlation Between Hengdian Entertainment and Guangdong Jingyi

Can any of the company-specific risk be diversified away by investing in both Hengdian Entertainment and Guangdong Jingyi 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 Hengdian Entertainment and Guangdong Jingyi into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hengdian Entertainment Co and Guangdong Jingyi Metal, you can compare the effects of market volatilities on Hengdian Entertainment and Guangdong Jingyi 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 Hengdian Entertainment with a short position of Guangdong Jingyi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hengdian Entertainment and Guangdong Jingyi.

Diversification Opportunities for Hengdian Entertainment and Guangdong Jingyi

0.78

Correlation Coefficient

Hengdian Entertainment  Guangdong Jingyi

Poor diversification

The 3 months correlation between Hengdian and Guangdong is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Hengdian Entertainment Co and Guangdong Jingyi Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Jingyi Metal and Hengdian Entertainment 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 Hengdian Entertainment Co are associated (or correlated) with Guangdong Jingyi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Jingyi Metal has no effect on the direction of Hengdian Entertainment i.e., Hengdian Entertainment and Guangdong Jingyi go up and down completely randomly.

Pair Corralation between Hengdian Entertainment and Guangdong Jingyi

Assuming the 90 days trading horizon Hengdian Entertainment Co is expected to generate 1.35 times more return on investment than Guangdong Jingyi. However, Hengdian Entertainment is 1.35 times more volatile than Guangdong Jingyi Metal. It trades about 0.05 of its potential returns per unit of risk. Guangdong Jingyi Metal is currently generating about 0.03 per unit of risk. If you would invest  1,307  in Hengdian Entertainment Co on October 4, 2024 and sell it today you would earn a total of  116.00  from holding Hengdian Entertainment Co or generate 8.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Hengdian Entertainment Co  vs.  Guangdong Jingyi Metal

Hengdian Entertainment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hengdian Entertainment Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengdian Entertainment sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangdong Jingyi Metal

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Jingyi Metal are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangdong Jingyi is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hengdian Entertainment and Guangdong Jingyi

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

The idea behind Hengdian Entertainment Co and Guangdong Jingyi Metal 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.