Correlation Between Hangzhou Huawang and Shenzhen Hifuture

Can any of the company-specific risk be diversified away by investing in both Hangzhou Huawang and Shenzhen Hifuture 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 Hangzhou Huawang and Shenzhen Hifuture into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hangzhou Huawang New and Shenzhen Hifuture Electric, you can compare the effects of market volatilities on Hangzhou Huawang and Shenzhen Hifuture 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 Hangzhou Huawang with a short position of Shenzhen Hifuture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hangzhou Huawang and Shenzhen Hifuture.

Diversification Opportunities for Hangzhou Huawang and Shenzhen Hifuture

0.84

Correlation Coefficient

Hangzhou Huawang  Shenzhen Hifuture

Very poor diversification

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

Pair Corralation between Hangzhou Huawang and Shenzhen Hifuture

Assuming the 90 days trading horizon Hangzhou Huawang New is expected to generate 0.6 times more return on investment than Shenzhen Hifuture. However, Hangzhou Huawang New is 1.67 times less risky than Shenzhen Hifuture. It trades about -0.06 of its potential returns per unit of risk. Shenzhen Hifuture Electric is currently generating about -0.1 per unit of risk. If you would invest  1,308  in Hangzhou Huawang New on December 1, 2024 and sell it today you would lose (88.00) from holding Hangzhou Huawang New or give up 6.73% of portfolio value over 90 days.

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

Hangzhou Huawang New  vs.  Shenzhen Hifuture Electric

Hangzhou Huawang New

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hangzhou Huawang New 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.

Shenzhen Hifuture

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenzhen Hifuture Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Hangzhou Huawang and Shenzhen Hifuture

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

The idea behind Hangzhou Huawang New and Shenzhen Hifuture Electric 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.