Correlation Between Eastroc Beverage and Huatian Hotel

Can any of the company-specific risk be diversified away by investing in both Eastroc Beverage and Huatian Hotel 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 Eastroc Beverage and Huatian Hotel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eastroc Beverage Group and Huatian Hotel Group, you can compare the effects of market volatilities on Eastroc Beverage and Huatian Hotel 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 Eastroc Beverage with a short position of Huatian Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastroc Beverage and Huatian Hotel.

Diversification Opportunities for Eastroc Beverage and Huatian Hotel

0.75

Correlation Coefficient

Eastroc Beverage  Huatian Hotel

Poor diversification

The 3 months correlation between Eastroc and Huatian is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Eastroc Beverage Group and Huatian Hotel Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huatian Hotel Group and Eastroc Beverage 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 Eastroc Beverage Group are associated (or correlated) with Huatian Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huatian Hotel Group has no effect on the direction of Eastroc Beverage i.e., Eastroc Beverage and Huatian Hotel go up and down completely randomly.

Pair Corralation between Eastroc Beverage and Huatian Hotel

Assuming the 90 days trading horizon Eastroc Beverage Group is expected to generate 0.71 times more return on investment than Huatian Hotel. However, Eastroc Beverage Group is 1.42 times less risky than Huatian Hotel. It trades about 0.08 of its potential returns per unit of risk. Huatian Hotel Group is currently generating about -0.04 per unit of risk. If you would invest  12,759  in Eastroc Beverage Group on September 25, 2024 and sell it today you would earn a total of  11,440  from holding Eastroc Beverage Group or generate 89.66% return on investment over 90 days.

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

Eastroc Beverage Group  vs.  Huatian Hotel Group

Eastroc Beverage

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eastroc Beverage Group are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eastroc Beverage sustained solid returns over the last few months and may actually be approaching a breakup point.

Huatian Hotel Group

Risk-Adjusted Performance

2 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Huatian Hotel Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huatian Hotel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Eastroc Beverage and Huatian Hotel

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

The idea behind Eastroc Beverage Group and Huatian Hotel Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.