Correlation Between Hengdian Entertainment and Guangdong Brandmax

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

Diversification Opportunities for Hengdian Entertainment and Guangdong Brandmax

0.68

Correlation Coefficient

Hengdian Entertainment  Guangdong Brandmax

Poor diversification

The 3 months correlation between Hengdian and Guangdong is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Hengdian Entertainment Co and Guangdong Brandmax Marketing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Brandmax 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 Brandmax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Brandmax has no effect on the direction of Hengdian Entertainment i.e., Hengdian Entertainment and Guangdong Brandmax go up and down completely randomly.

Pair Corralation between Hengdian Entertainment and Guangdong Brandmax

Assuming the 90 days trading horizon Hengdian Entertainment Co is expected to under-perform the Guangdong Brandmax. But the stock apears to be less risky and, when comparing its historical volatility, Hengdian Entertainment Co is 2.62 times less risky than Guangdong Brandmax. The stock trades about -0.21 of its potential returns per unit of risk. The Guangdong Brandmax Marketing is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  999.00  in Guangdong Brandmax Marketing on October 10, 2024 and sell it today you would earn a total of  120.00  from holding Guangdong Brandmax Marketing or generate 12.01% return on investment over 90 days.

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

Hengdian Entertainment Co  vs.  Guangdong Brandmax Marketing

Hengdian Entertainment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hengdian Entertainment Co are ranked lower than 5 (%) 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 Brandmax

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Brandmax Marketing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Brandmax sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hengdian Entertainment and Guangdong Brandmax

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

The idea behind Hengdian Entertainment Co and Guangdong Brandmax Marketing 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.