Correlation Between HOB Biotech and Shanxi Lanhua

Can any of the company-specific risk be diversified away by investing in both HOB Biotech and Shanxi Lanhua 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 HOB Biotech and Shanxi Lanhua into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HOB Biotech Group and Shanxi Lanhua Sci Tech, you can compare the effects of market volatilities on HOB Biotech and Shanxi Lanhua 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 HOB Biotech with a short position of Shanxi Lanhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of HOB Biotech and Shanxi Lanhua.

Diversification Opportunities for HOB Biotech and Shanxi Lanhua

0.07

Correlation Coefficient

HOB Biotech  Shanxi Lanhua

Significant diversification

The 3 months correlation between HOB and Shanxi is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding HOB Biotech Group and Shanxi Lanhua Sci Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanxi Lanhua Sci and HOB Biotech 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 HOB Biotech Group are associated (or correlated) with Shanxi Lanhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanxi Lanhua Sci has no effect on the direction of HOB Biotech i.e., HOB Biotech and Shanxi Lanhua go up and down completely randomly.

Pair Corralation between HOB Biotech and Shanxi Lanhua

Assuming the 90 days trading horizon HOB Biotech Group is expected to generate 3.51 times more return on investment than Shanxi Lanhua. However, HOB Biotech is 3.51 times more volatile than Shanxi Lanhua Sci Tech. It trades about -0.01 of its potential returns per unit of risk. Shanxi Lanhua Sci Tech is currently generating about -0.16 per unit of risk. If you would invest  9,550  in HOB Biotech Group on December 31, 2024 and sell it today you would lose (650.00) from holding HOB Biotech Group or give up 6.81% of portfolio value over 90 days.

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

HOB Biotech Group  vs.  Shanxi Lanhua Sci Tech

HOB Biotech Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days HOB Biotech Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HOB Biotech is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shanxi Lanhua Sci

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanxi Lanhua Sci Tech 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.

Pair Trading with HOB Biotech and Shanxi Lanhua

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

The idea behind HOB Biotech Group and Shanxi Lanhua Sci Tech 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.