Correlation Between Sichuan Teway and Hengdian Entertainment

Can any of the company-specific risk be diversified away by investing in both Sichuan Teway and Hengdian Entertainment 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 Sichuan Teway and Hengdian Entertainment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sichuan Teway Food and Hengdian Entertainment Co, you can compare the effects of market volatilities on Sichuan Teway and Hengdian Entertainment 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 Sichuan Teway with a short position of Hengdian Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Teway and Hengdian Entertainment.

Diversification Opportunities for Sichuan Teway and Hengdian Entertainment

0.5

Correlation Coefficient

Sichuan Teway  Hengdian Entertainment

Very weak diversification

The 3 months correlation between Sichuan and Hengdian is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Teway Food and Hengdian Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengdian Entertainment and Sichuan Teway 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 Sichuan Teway Food are associated (or correlated) with Hengdian Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengdian Entertainment has no effect on the direction of Sichuan Teway i.e., Sichuan Teway and Hengdian Entertainment go up and down completely randomly.

Pair Corralation between Sichuan Teway and Hengdian Entertainment

Assuming the 90 days trading horizon Sichuan Teway Food is expected to generate 0.51 times more return on investment than Hengdian Entertainment. However, Sichuan Teway Food is 1.94 times less risky than Hengdian Entertainment. It trades about -0.35 of its potential returns per unit of risk. Hengdian Entertainment Co is currently generating about -0.46 per unit of risk. If you would invest  1,464  in Sichuan Teway Food on October 16, 2024 and sell it today you would lose (178.00) from holding Sichuan Teway Food or give up 12.16% of portfolio value over 90 days.

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

Sichuan Teway Food  vs.  Hengdian Entertainment Co

Sichuan Teway Food

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Sichuan Teway and Hengdian Entertainment

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

The idea behind Sichuan Teway Food and Hengdian Entertainment 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.