Correlation Between CHINA HUARONG and Carrier Global

Can any of the company-specific risk be diversified away by investing in both CHINA HUARONG and Carrier Global 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 CHINA HUARONG and Carrier Global into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CHINA HUARONG ENERHD 50 and Carrier Global, you can compare the effects of market volatilities on CHINA HUARONG and Carrier Global 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 CHINA HUARONG with a short position of Carrier Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA HUARONG and Carrier Global.

Diversification Opportunities for CHINA HUARONG and Carrier Global

0.13

Correlation Coefficient

CHINA HUARONG  Carrier Global

Average diversification

The 3 months correlation between CHINA and Carrier is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding CHINA HUARONG ENERHD 50 and Carrier Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carrier Global and CHINA HUARONG 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 CHINA HUARONG ENERHD 50 are associated (or correlated) with Carrier Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carrier Global has no effect on the direction of CHINA HUARONG i.e., CHINA HUARONG and Carrier Global go up and down completely randomly.

Pair Corralation between CHINA HUARONG and Carrier Global

Assuming the 90 days trading horizon CHINA HUARONG ENERHD 50 is expected to under-perform the Carrier Global. In addition to that, CHINA HUARONG is 8.6 times more volatile than Carrier Global. It trades about -0.03 of its total potential returns per unit of risk. Carrier Global is currently generating about -0.01 per unit of volatility. If you would invest  7,030  in Carrier Global on September 16, 2024 and sell it today you would lose (40.00) from holding Carrier Global or give up 0.57% of portfolio value over 90 days.

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

CHINA HUARONG ENERHD 50  vs.  Carrier Global

CHINA HUARONG ENERHD

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA HUARONG reported solid returns over the last few months and may actually be approaching a breakup point.

Carrier Global

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Carrier Global are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Carrier Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CHINA HUARONG and Carrier Global

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

The idea behind CHINA HUARONG ENERHD 50 and Carrier Global 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.