Correlation Between Shandong Huifa and Oriental Times

Can any of the company-specific risk be diversified away by investing in both Shandong Huifa and Oriental Times 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 Oriental Times 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 Oriental Times Media, you can compare the effects of market volatilities on Shandong Huifa and Oriental Times 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 Oriental Times. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Huifa and Oriental Times.

Diversification Opportunities for Shandong Huifa and Oriental Times

0.78

Correlation Coefficient

Shandong Huifa  Oriental Times

Poor diversification

The 3 months correlation between Shandong and Oriental is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Huifa Foodstuff and Oriental Times Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oriental Times Media 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 Oriental Times. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oriental Times Media has no effect on the direction of Shandong Huifa i.e., Shandong Huifa and Oriental Times go up and down completely randomly.

Pair Corralation between Shandong Huifa and Oriental Times

Assuming the 90 days trading horizon Shandong Huifa is expected to generate 1.96 times less return on investment than Oriental Times. But when comparing it to its historical volatility, Shandong Huifa Foodstuff is 1.2 times less risky than Oriental Times. It trades about 0.22 of its potential returns per unit of risk. Oriental Times Media is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  172.00  in Oriental Times Media on September 2, 2024 and sell it today you would earn a total of  280.00  from holding Oriental Times Media or generate 162.79% return on investment over 90 days.

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

Shandong Huifa Foodstuff  vs.  Oriental Times Media

Shandong Huifa Foodstuff

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Huifa Foodstuff are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Huifa sustained solid returns over the last few months and may actually be approaching a breakup point.

Oriental Times Media

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Oriental Times Media are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oriental Times sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Huifa and Oriental Times

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

The idea behind Shandong Huifa Foodstuff and Oriental Times Media 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.