Correlation Between Shandong Huifa and Fuda Alloy

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

Diversification Opportunities for Shandong Huifa and Fuda Alloy

0.87

Correlation Coefficient

Shandong Huifa  Fuda Alloy

Very poor diversification

The 3 months correlation between Shandong and Fuda is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Huifa Foodstuff and Fuda Alloy Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuda Alloy Materials 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 Fuda Alloy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuda Alloy Materials has no effect on the direction of Shandong Huifa i.e., Shandong Huifa and Fuda Alloy go up and down completely randomly.

Pair Corralation between Shandong Huifa and Fuda Alloy

Assuming the 90 days trading horizon Shandong Huifa Foodstuff is expected to generate 2.0 times more return on investment than Fuda Alloy. However, Shandong Huifa is 2.0 times more volatile than Fuda Alloy Materials. It trades about 0.19 of its potential returns per unit of risk. Fuda Alloy Materials is currently generating about 0.12 per unit of risk. If you would invest  1,002  in Shandong Huifa Foodstuff on September 4, 2024 and sell it today you would earn a total of  169.00  from holding Shandong Huifa Foodstuff or generate 16.87% 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.  Fuda Alloy Materials

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.

Fuda Alloy Materials

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Shandong Huifa and Fuda Alloy

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

The idea behind Shandong Huifa Foodstuff and Fuda Alloy Materials 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.