Correlation Between Hengdian Entertainment and Zhejiang Juhua

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

Diversification Opportunities for Hengdian Entertainment and Zhejiang Juhua

0.8

Correlation Coefficient

Hengdian Entertainment  Zhejiang Juhua

Very poor diversification

The 3 months correlation between Hengdian and Zhejiang is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Hengdian Entertainment Co and Zhejiang Juhua Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhejiang Juhua 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 Zhejiang Juhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhejiang Juhua has no effect on the direction of Hengdian Entertainment i.e., Hengdian Entertainment and Zhejiang Juhua go up and down completely randomly.

Pair Corralation between Hengdian Entertainment and Zhejiang Juhua

Assuming the 90 days trading horizon Hengdian Entertainment is expected to generate 2.36 times less return on investment than Zhejiang Juhua. In addition to that, Hengdian Entertainment is 1.58 times more volatile than Zhejiang Juhua Co. It trades about 0.04 of its total potential returns per unit of risk. Zhejiang Juhua Co is currently generating about 0.14 per unit of volatility. If you would invest  2,209  in Zhejiang Juhua Co on September 29, 2024 and sell it today you would earn a total of  131.00  from holding Zhejiang Juhua Co or generate 5.93% return on investment over 90 days.

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

Hengdian Entertainment Co  vs.  Zhejiang Juhua Co

Hengdian Entertainment

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hengdian Entertainment Co are ranked lower than 7 (%) 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.

Zhejiang Juhua

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Juhua Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Juhua may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hengdian Entertainment and Zhejiang Juhua

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

The idea behind Hengdian Entertainment Co and Zhejiang Juhua 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.