Correlation Between Shandong Huifa and Sunwave Communications

Can any of the company-specific risk be diversified away by investing in both Shandong Huifa and Sunwave Communications 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 Shandong Huifa and Sunwave Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shandong Huifa Foodstuff and Sunwave Communications Co, you can compare the effects of market volatilities on Shandong Huifa and Sunwave Communications 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 Shandong Huifa with a short position of Sunwave Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Huifa and Sunwave Communications.

Diversification Opportunities for Shandong Huifa and Sunwave Communications

0.84

Correlation Coefficient

Shandong Huifa  Sunwave Communications

Very poor diversification

The 3 months correlation between Shandong and Sunwave is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Huifa Foodstuff and Sunwave Communications Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunwave Communications and Shandong Huifa 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 Shandong Huifa Foodstuff are associated (or correlated) with Sunwave Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunwave Communications has no effect on the direction of Shandong Huifa i.e., Shandong Huifa and Sunwave Communications go up and down completely randomly.

Pair Corralation between Shandong Huifa and Sunwave Communications

Assuming the 90 days trading horizon Shandong Huifa Foodstuff is expected to under-perform the Sunwave Communications. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Huifa Foodstuff is 1.11 times less risky than Sunwave Communications. The stock trades about -0.01 of its potential returns per unit of risk. The Sunwave Communications Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  704.00  in Sunwave Communications Co on December 1, 2024 and sell it today you would earn a total of  27.00  from holding Sunwave Communications Co or generate 3.84% return on investment over 90 days.

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

Shandong Huifa Foodstuff  vs.  Sunwave Communications Co

Shandong Huifa Foodstuff

Risk-Adjusted Performance

Very Weak

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

Sunwave Communications

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sunwave Communications Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sunwave Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Huifa and Sunwave Communications

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

The idea behind Shandong Huifa Foodstuff and Sunwave Communications 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.