Correlation Between HUAQIN TECHNOLOGY and Xiamen Bank

Can any of the company-specific risk be diversified away by investing in both HUAQIN TECHNOLOGY and Xiamen Bank 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 HUAQIN TECHNOLOGY and Xiamen Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HUAQIN TECHNOLOGY LTD and Xiamen Bank Co, you can compare the effects of market volatilities on HUAQIN TECHNOLOGY and Xiamen Bank 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 HUAQIN TECHNOLOGY with a short position of Xiamen Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of HUAQIN TECHNOLOGY and Xiamen Bank.

Diversification Opportunities for HUAQIN TECHNOLOGY and Xiamen Bank

0.35

Correlation Coefficient

HUAQIN TECHNOLOGY  Xiamen Bank

Weak diversification

The 3 months correlation between HUAQIN and Xiamen is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding HUAQIN TECHNOLOGY LTD and Xiamen Bank Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Bank and HUAQIN TECHNOLOGY 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 HUAQIN TECHNOLOGY LTD are associated (or correlated) with Xiamen Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Bank has no effect on the direction of HUAQIN TECHNOLOGY i.e., HUAQIN TECHNOLOGY and Xiamen Bank go up and down completely randomly.

Pair Corralation between HUAQIN TECHNOLOGY and Xiamen Bank

Assuming the 90 days trading horizon HUAQIN TECHNOLOGY LTD is expected to generate 2.1 times more return on investment than Xiamen Bank. However, HUAQIN TECHNOLOGY is 2.1 times more volatile than Xiamen Bank Co. It trades about 0.06 of its potential returns per unit of risk. Xiamen Bank Co is currently generating about 0.02 per unit of risk. If you would invest  5,128  in HUAQIN TECHNOLOGY LTD on October 26, 2024 and sell it today you would earn a total of  2,743  from holding HUAQIN TECHNOLOGY LTD or generate 53.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	74.07%
Values	Daily Returns

HUAQIN TECHNOLOGY LTD  vs.  Xiamen Bank Co

HUAQIN TECHNOLOGY LTD

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HUAQIN TECHNOLOGY LTD are ranked lower than 12 (%) 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.

Xiamen Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xiamen Bank Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xiamen Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with HUAQIN TECHNOLOGY and Xiamen Bank

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

The idea behind HUAQIN TECHNOLOGY LTD and Xiamen Bank 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.