Correlation Between SP500 VIX and Huadi International

Can any of the company-specific risk be diversified away by investing in both SP500 VIX and Huadi International 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 SP500 VIX and Huadi International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SP500 VIX Futures and Huadi International Group, you can compare the effects of market volatilities on SP500 VIX and Huadi International 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 SP500 VIX with a short position of Huadi International. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP500 VIX and Huadi International.

Diversification Opportunities for SP500 VIX and Huadi International

0.64

Correlation Coefficient

SP500 VIX  Huadi International

Poor diversification

The 3 months correlation between SP500 and Huadi is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding SP500 VIX Futures and Huadi International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huadi International and SP500 VIX 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 SP500 VIX Futures are associated (or correlated) with Huadi International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huadi International has no effect on the direction of SP500 VIX i.e., SP500 VIX and Huadi International go up and down completely randomly.

Pair Corralation between SP500 VIX and Huadi International

Assuming the 90 days trading horizon SP500 VIX Futures is expected to generate 0.38 times more return on investment than Huadi International. However, SP500 VIX Futures is 2.62 times less risky than Huadi International. It trades about -0.05 of its potential returns per unit of risk. Huadi International Group is currently generating about -0.03 per unit of risk. If you would invest  2,145,795  in SP500 VIX Futures on September 16, 2024 and sell it today you would lose (148,594) from holding SP500 VIX Futures or give up 6.92% of portfolio value over 90 days.

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

SP500 VIX Futures  vs.  Huadi International Group

Pair Trading with SP500 VIX and Huadi International

The main advantage of trading using opposite SP500 VIX and Huadi International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP500 VIX position performs unexpectedly, Huadi International 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 Huadi International will offset losses from the drop in Huadi International's long position.

The idea behind SP500 VIX Futures and Huadi International 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.