Correlation Between Huadi International and Century Aluminum

Can any of the company-specific risk be diversified away by investing in both Huadi International and Century Aluminum 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 Huadi International and Century Aluminum into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Huadi International and Century Aluminum

-0.54

Correlation Coefficient

Huadi International  Century Aluminum

Excellent diversification

The 3 months correlation between Huadi and Century is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Huadi International Group and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum and Huadi International 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 Huadi International Group are associated (or correlated) with Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of Huadi International i.e., Huadi International and Century Aluminum go up and down completely randomly.

Pair Corralation between Huadi International and Century Aluminum

Given the investment horizon of 90 days Huadi International Group is expected to under-perform the Century Aluminum. In addition to that, Huadi International is 1.28 times more volatile than Century Aluminum. It trades about -0.03 of its total potential returns per unit of risk. Century Aluminum is currently generating about 0.17 per unit of volatility. If you would invest  1,420  in Century Aluminum on September 16, 2024 and sell it today you would earn a total of  667.00  from holding Century Aluminum or generate 46.97% return on investment over 90 days.

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

Huadi International Group  vs.  Century Aluminum

Huadi International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huadi International Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Century Aluminum

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Huadi International and Century Aluminum

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

The idea behind Huadi International Group and Century Aluminum 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.