Correlation Between Hengdian Entertainment and Ningbo Bird

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

Diversification Opportunities for Hengdian Entertainment and Ningbo Bird

0.63

Correlation Coefficient

Hengdian Entertainment  Ningbo Bird

Poor diversification

The 3 months correlation between Hengdian and Ningbo is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Hengdian Entertainment Co and Ningbo Bird Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Bird 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 Ningbo Bird. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Bird has no effect on the direction of Hengdian Entertainment i.e., Hengdian Entertainment and Ningbo Bird go up and down completely randomly.

Pair Corralation between Hengdian Entertainment and Ningbo Bird

Assuming the 90 days trading horizon Hengdian Entertainment Co is expected to generate 0.82 times more return on investment than Ningbo Bird. However, Hengdian Entertainment Co is 1.22 times less risky than Ningbo Bird. It trades about -0.06 of its potential returns per unit of risk. Ningbo Bird Co is currently generating about -0.18 per unit of risk. If you would invest  1,516  in Hengdian Entertainment Co on October 3, 2024 and sell it today you would lose (77.00) from holding Hengdian Entertainment Co or give up 5.08% of portfolio value over 90 days.

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

Hengdian Entertainment Co  vs.  Ningbo Bird Co

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.

Ningbo Bird

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Bird Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Bird may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Hengdian Entertainment and Ningbo Bird

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

The idea behind Hengdian Entertainment Co and Ningbo Bird Co 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..