Correlation Between Hengdian Entertainment and Hubei Xingfa

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

Diversification Opportunities for Hengdian Entertainment and Hubei Xingfa

0.68

Correlation Coefficient

Hengdian Entertainment  Hubei Xingfa

Poor diversification

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

Pair Corralation between Hengdian Entertainment and Hubei Xingfa

Assuming the 90 days trading horizon Hengdian Entertainment is expected to generate 6.48 times less return on investment than Hubei Xingfa. In addition to that, Hengdian Entertainment is 1.31 times more volatile than Hubei Xingfa Chemicals. It trades about 0.01 of its total potential returns per unit of risk. Hubei Xingfa Chemicals is currently generating about 0.06 per unit of volatility. If you would invest  1,737  in Hubei Xingfa Chemicals on September 20, 2024 and sell it today you would earn a total of  513.00  from holding Hubei Xingfa Chemicals or generate 29.53% 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.  Hubei Xingfa Chemicals

Hengdian Entertainment

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hengdian Entertainment Co are ranked lower than 16 (%) 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.

Hubei Xingfa Chemicals

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Xingfa Chemicals are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Xingfa sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hengdian Entertainment and Hubei Xingfa

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

The idea behind Hengdian Entertainment Co and Hubei Xingfa Chemicals 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.