Correlation Between Healthcare and Tianjin Hi-Tech

Can any of the company-specific risk be diversified away by investing in both Healthcare and Tianjin Hi-Tech 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 Healthcare and Tianjin Hi-Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Healthcare Co and Tianjin Hi Tech Development, you can compare the effects of market volatilities on Healthcare and Tianjin Hi-Tech 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 Healthcare with a short position of Tianjin Hi-Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Healthcare and Tianjin Hi-Tech.

Diversification Opportunities for Healthcare and Tianjin Hi-Tech

0.01

Correlation Coefficient

Healthcare  Tianjin Hi-Tech

Significant diversification

The 3 months correlation between Healthcare and Tianjin is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Healthcare Co and Tianjin Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Hi Tech and Healthcare 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 Healthcare Co are associated (or correlated) with Tianjin Hi-Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Hi Tech has no effect on the direction of Healthcare i.e., Healthcare and Tianjin Hi-Tech go up and down completely randomly.

Pair Corralation between Healthcare and Tianjin Hi-Tech

Assuming the 90 days trading horizon Healthcare Co is expected to under-perform the Tianjin Hi-Tech. But the stock apears to be less risky and, when comparing its historical volatility, Healthcare Co is 1.11 times less risky than Tianjin Hi-Tech. The stock trades about -0.1 of its potential returns per unit of risk. The Tianjin Hi Tech Development is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  275.00  in Tianjin Hi Tech Development on December 28, 2024 and sell it today you would earn a total of  25.00  from holding Tianjin Hi Tech Development or generate 9.09% return on investment over 90 days.

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

Healthcare Co  vs.  Tianjin Hi Tech Development

Healthcare

Risk-Adjusted Performance

Very Weak

Over the last 90 days Healthcare 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.

Tianjin Hi Tech

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Healthcare and Tianjin Hi-Tech

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

The idea behind Healthcare Co and Tianjin Hi Tech Development 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.