Correlation Between Aofu Environmental and Hubei Geoway

Can any of the company-specific risk be diversified away by investing in both Aofu Environmental and Hubei Geoway 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 Aofu Environmental and Hubei Geoway into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aofu Environmental Technology and Hubei Geoway Investment, you can compare the effects of market volatilities on Aofu Environmental and Hubei Geoway 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 Aofu Environmental with a short position of Hubei Geoway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aofu Environmental and Hubei Geoway.

Diversification Opportunities for Aofu Environmental and Hubei Geoway

0.39

Correlation Coefficient

Aofu Environmental  Hubei Geoway

Weak diversification

The 3 months correlation between Aofu and Hubei is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Aofu Environmental Technology and Hubei Geoway Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Geoway Investment and Aofu Environmental 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 Aofu Environmental Technology are associated (or correlated) with Hubei Geoway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Geoway Investment has no effect on the direction of Aofu Environmental i.e., Aofu Environmental and Hubei Geoway go up and down completely randomly.

Pair Corralation between Aofu Environmental and Hubei Geoway

Assuming the 90 days trading horizon Aofu Environmental Technology is expected to under-perform the Hubei Geoway. In addition to that, Aofu Environmental is 1.16 times more volatile than Hubei Geoway Investment. It trades about -0.04 of its total potential returns per unit of risk. Hubei Geoway Investment is currently generating about -0.01 per unit of volatility. If you would invest  238.00  in Hubei Geoway Investment on September 20, 2024 and sell it today you would lose (44.00) from holding Hubei Geoway Investment or give up 18.49% of portfolio value over 90 days.

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

Aofu Environmental Technology  vs.  Hubei Geoway Investment

Aofu Environmental

Risk-Adjusted Performance

17 of 100

Solid

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

Hubei Geoway Investment

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Geoway Investment are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Geoway sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aofu Environmental and Hubei Geoway

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

The idea behind Aofu Environmental Technology and Hubei Geoway Investment 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.