Correlation Between Hengdian Entertainment and Sinomach Automobile

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

Diversification Opportunities for Hengdian Entertainment and Sinomach Automobile

0.73

Correlation Coefficient

Hengdian Entertainment  Sinomach Automobile

Poor diversification

The 3 months correlation between Hengdian and Sinomach is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Hengdian Entertainment Co and Sinomach Automobile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinomach Automobile 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 Sinomach Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinomach Automobile has no effect on the direction of Hengdian Entertainment i.e., Hengdian Entertainment and Sinomach Automobile go up and down completely randomly.

Pair Corralation between Hengdian Entertainment and Sinomach Automobile

Assuming the 90 days trading horizon Hengdian Entertainment is expected to generate 1.27 times less return on investment than Sinomach Automobile. In addition to that, Hengdian Entertainment is 1.24 times more volatile than Sinomach Automobile Co. It trades about 0.03 of its total potential returns per unit of risk. Sinomach Automobile Co is currently generating about 0.05 per unit of volatility. If you would invest  543.00  in Sinomach Automobile Co on October 4, 2024 and sell it today you would earn a total of  80.00  from holding Sinomach Automobile Co or generate 14.73% 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.  Sinomach Automobile 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.

Sinomach Automobile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sinomach Automobile Co 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 Sinomach Automobile

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

The idea behind Hengdian Entertainment Co and Sinomach Automobile 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .