Correlation Between CHINA HUARONG and Aena SME

Can any of the company-specific risk be diversified away by investing in both CHINA HUARONG and Aena SME 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 Aena SME 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 Aena SME SA, you can compare the effects of market volatilities on CHINA HUARONG and Aena SME 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 Aena SME. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA HUARONG and Aena SME.

Diversification Opportunities for CHINA HUARONG and Aena SME

-0.65

Correlation Coefficient

CHINA HUARONG  Aena SME

Excellent diversification

The 3 months correlation between CHINA and Aena is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding CHINA HUARONG ENERHD 50 and Aena SME SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aena SME SA 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 Aena SME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aena SME SA has no effect on the direction of CHINA HUARONG i.e., CHINA HUARONG and Aena SME go up and down completely randomly.

Pair Corralation between CHINA HUARONG and Aena SME

Assuming the 90 days trading horizon CHINA HUARONG ENERHD 50 is expected to generate 17.86 times more return on investment than Aena SME. However, CHINA HUARONG is 17.86 times more volatile than Aena SME SA. It trades about 0.02 of its potential returns per unit of risk. Aena SME SA is currently generating about 0.13 per unit of risk. If you would invest  0.15  in CHINA HUARONG ENERHD 50 on December 26, 2024 and sell it today you would lose (0.10) from holding CHINA HUARONG ENERHD 50 or give up 66.67% of portfolio value over 90 days.

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

CHINA HUARONG ENERHD 50  vs.  Aena SME SA

CHINA HUARONG ENERHD

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 1 (%) 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.

Aena SME SA

Risk-Adjusted Performance

OK

Over the last 90 days Aena SME SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Aena SME may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with CHINA HUARONG and Aena SME

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

The idea behind CHINA HUARONG ENERHD 50 and Aena SME SA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.