Correlation Between Hengdian Entertainment and HUAQIN TECHNOLOGY

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

Diversification Opportunities for Hengdian Entertainment and HUAQIN TECHNOLOGY

0.86

Correlation Coefficient

Hengdian Entertainment  HUAQIN TECHNOLOGY

Very poor diversification

The 3 months correlation between Hengdian and HUAQIN is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Hengdian Entertainment Co and HUAQIN TECHNOLOGY LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HUAQIN TECHNOLOGY LTD 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 HUAQIN TECHNOLOGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HUAQIN TECHNOLOGY LTD has no effect on the direction of Hengdian Entertainment i.e., Hengdian Entertainment and HUAQIN TECHNOLOGY go up and down completely randomly.

Pair Corralation between Hengdian Entertainment and HUAQIN TECHNOLOGY

Assuming the 90 days trading horizon Hengdian Entertainment is expected to generate 1.56 times less return on investment than HUAQIN TECHNOLOGY. In addition to that, Hengdian Entertainment is 1.13 times more volatile than HUAQIN TECHNOLOGY LTD. It trades about 0.02 of its total potential returns per unit of risk. HUAQIN TECHNOLOGY LTD is currently generating about 0.03 per unit of volatility. If you would invest  5,128  in HUAQIN TECHNOLOGY LTD on September 20, 2024 and sell it today you would earn a total of  1,033  from holding HUAQIN TECHNOLOGY LTD or generate 20.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	69.54%
Values	Daily Returns

Hengdian Entertainment Co  vs.  HUAQIN TECHNOLOGY LTD

Hengdian Entertainment

Risk-Adjusted Performance

16 of 100

Solid

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.

HUAQIN TECHNOLOGY LTD

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HUAQIN TECHNOLOGY LTD are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HUAQIN TECHNOLOGY sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hengdian Entertainment and HUAQIN TECHNOLOGY

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

The idea behind Hengdian Entertainment Co and HUAQIN TECHNOLOGY LTD 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.