Correlation Between Guangdong Ellington and Weihai Honglin

Can any of the company-specific risk be diversified away by investing in both Guangdong Ellington and Weihai Honglin 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 Guangdong Ellington and Weihai Honglin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangdong Ellington Electronics and Weihai Honglin Electronic, you can compare the effects of market volatilities on Guangdong Ellington and Weihai Honglin 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 Guangdong Ellington with a short position of Weihai Honglin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Ellington and Weihai Honglin.

Diversification Opportunities for Guangdong Ellington and Weihai Honglin

0.67

Correlation Coefficient

Guangdong Ellington  Weihai Honglin

Poor diversification

The 3 months correlation between Guangdong and Weihai is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Ellington Electronic and Weihai Honglin Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weihai Honglin Electronic and Guangdong Ellington 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 Guangdong Ellington Electronics are associated (or correlated) with Weihai Honglin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weihai Honglin Electronic has no effect on the direction of Guangdong Ellington i.e., Guangdong Ellington and Weihai Honglin go up and down completely randomly.

Pair Corralation between Guangdong Ellington and Weihai Honglin

Assuming the 90 days trading horizon Guangdong Ellington Electronics is expected to under-perform the Weihai Honglin. In addition to that, Guangdong Ellington is 1.06 times more volatile than Weihai Honglin Electronic. It trades about -0.04 of its total potential returns per unit of risk. Weihai Honglin Electronic is currently generating about -0.01 per unit of volatility. If you would invest  1,457  in Weihai Honglin Electronic on October 5, 2024 and sell it today you would lose (51.00) from holding Weihai Honglin Electronic or give up 3.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Guangdong Ellington Electronic  vs.  Weihai Honglin Electronic

Guangdong Ellington

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Ellington Electronics 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.

Weihai Honglin Electronic

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Guangdong Ellington and Weihai Honglin

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

The idea behind Guangdong Ellington Electronics and Weihai Honglin Electronic 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.

Check out your portfolio center.

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.