Correlation Between Shanghai Shuixing and Hainan HNA

Can any of the company-specific risk be diversified away by investing in both Shanghai Shuixing and Hainan HNA 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 Shanghai Shuixing and Hainan HNA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shanghai Shuixing Home and Hainan HNA Infrastructure, you can compare the effects of market volatilities on Shanghai Shuixing and Hainan HNA 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 Shanghai Shuixing with a short position of Hainan HNA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Shuixing and Hainan HNA.

Diversification Opportunities for Shanghai Shuixing and Hainan HNA

0.79

Correlation Coefficient

Shanghai Shuixing  Hainan HNA

Poor diversification

The 3 months correlation between Shanghai and Hainan is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Shuixing Home and Hainan HNA Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan HNA Infrastructure and Shanghai Shuixing 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 Shanghai Shuixing Home are associated (or correlated) with Hainan HNA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan HNA Infrastructure has no effect on the direction of Shanghai Shuixing i.e., Shanghai Shuixing and Hainan HNA go up and down completely randomly.

Pair Corralation between Shanghai Shuixing and Hainan HNA

Assuming the 90 days trading horizon Shanghai Shuixing Home is expected to generate 1.36 times more return on investment than Hainan HNA. However, Shanghai Shuixing is 1.36 times more volatile than Hainan HNA Infrastructure. It trades about 0.12 of its potential returns per unit of risk. Hainan HNA Infrastructure is currently generating about 0.04 per unit of risk. If you would invest  1,517  in Shanghai Shuixing Home on September 22, 2024 and sell it today you would earn a total of  133.00  from holding Shanghai Shuixing Home or generate 8.77% return on investment over 90 days.

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

Shanghai Shuixing Home  vs.  Hainan HNA Infrastructure

Shanghai Shuixing Home

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Shuixing Home are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Shuixing sustained solid returns over the last few months and may actually be approaching a breakup point.

Hainan HNA Infrastructure

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan HNA Infrastructure are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan HNA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Shuixing and Hainan HNA

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

The idea behind Shanghai Shuixing Home and Hainan HNA Infrastructure 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.