Correlation Between Hengdian Entertainment and XiAn Dagang

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

Diversification Opportunities for Hengdian Entertainment and XiAn Dagang

-0.15

Correlation Coefficient

Hengdian Entertainment  XiAn Dagang

Good diversification

The 3 months correlation between Hengdian and XiAn is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Hengdian Entertainment Co and XiAn Dagang Road in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XiAn Dagang Road 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 XiAn Dagang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XiAn Dagang Road has no effect on the direction of Hengdian Entertainment i.e., Hengdian Entertainment and XiAn Dagang go up and down completely randomly.

Pair Corralation between Hengdian Entertainment and XiAn Dagang

Assuming the 90 days trading horizon Hengdian Entertainment Co is expected to generate 0.96 times more return on investment than XiAn Dagang. However, Hengdian Entertainment Co is 1.04 times less risky than XiAn Dagang. It trades about -0.26 of its potential returns per unit of risk. XiAn Dagang Road is currently generating about -0.28 per unit of risk. If you would invest  1,585  in Hengdian Entertainment Co on October 11, 2024 and sell it today you would lose (291.00) from holding Hengdian Entertainment Co or give up 18.36% of portfolio value over 90 days.

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

Hengdian Entertainment Co  vs.  XiAn Dagang Road

Hengdian Entertainment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hengdian Entertainment Co are ranked lower than 6 (%) 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.

XiAn Dagang Road

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XiAn Dagang Road 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 Hengdian Entertainment and XiAn Dagang

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

The idea behind Hengdian Entertainment Co and XiAn Dagang Road 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.