Correlation Between Hengdian Entertainment and Tibet Huayu

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

Diversification Opportunities for Hengdian Entertainment and Tibet Huayu

0.59

Correlation Coefficient

Hengdian Entertainment  Tibet Huayu

Very weak diversification

The 3 months correlation between Hengdian and Tibet is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Hengdian Entertainment Co and Tibet Huayu Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tibet Huayu Mining 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 Tibet Huayu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tibet Huayu Mining has no effect on the direction of Hengdian Entertainment i.e., Hengdian Entertainment and Tibet Huayu go up and down completely randomly.

Pair Corralation between Hengdian Entertainment and Tibet Huayu

Assuming the 90 days trading horizon Hengdian Entertainment Co is expected to generate 1.08 times more return on investment than Tibet Huayu. However, Hengdian Entertainment is 1.08 times more volatile than Tibet Huayu Mining. It trades about 0.05 of its potential returns per unit of risk. Tibet Huayu Mining is currently generating about -0.02 per unit of risk. If you would invest  1,307  in Hengdian Entertainment Co on October 4, 2024 and sell it today you would earn a total of  116.00  from holding Hengdian Entertainment Co or generate 8.88% return on investment over 90 days.

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

Hengdian Entertainment Co  vs.  Tibet Huayu Mining

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.

Tibet Huayu Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tibet Huayu Mining has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tibet Huayu is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hengdian Entertainment and Tibet Huayu

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

The idea behind Hengdian Entertainment Co and Tibet Huayu Mining 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.