Correlation Between Environmental Control and Hong Yuan

Can any of the company-specific risk be diversified away by investing in both Environmental Control and Hong Yuan 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 Environmental Control and Hong Yuan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Environmental Control Corp and Hong Yuan Holding, you can compare the effects of market volatilities on Environmental Control and Hong Yuan 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 Environmental Control with a short position of Hong Yuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Environmental Control and Hong Yuan.

Diversification Opportunities for Environmental Control and Hong Yuan

-0.22

Correlation Coefficient

Environmental Control  Hong Yuan

Very good diversification

The 3 months correlation between Environmental and Hong is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Environmental Control Corp and Hong Yuan Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Yuan Holding and Environmental Control 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 Environmental Control Corp are associated (or correlated) with Hong Yuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Yuan Holding has no effect on the direction of Environmental Control i.e., Environmental Control and Hong Yuan go up and down completely randomly.

Pair Corralation between Environmental Control and Hong Yuan

Given the investment horizon of 90 days Environmental Control Corp is expected to under-perform the Hong Yuan. But the pink sheet apears to be less risky and, when comparing its historical volatility, Environmental Control Corp is 189.75 times less risky than Hong Yuan. The pink sheet trades about -0.23 of its potential returns per unit of risk. The Hong Yuan Holding is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  2.60  in Hong Yuan Holding on October 8, 2024 and sell it today you would earn a total of  2.10  from holding Hong Yuan Holding or generate 80.77% return on investment over 90 days.

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

Environmental Control Corp  vs.  Hong Yuan Holding

Environmental Control

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Environmental Control Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Environmental Control displayed solid returns over the last few months and may actually be approaching a breakup point.

Hong Yuan Holding

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Yuan Holding are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Hong Yuan displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Environmental Control and Hong Yuan

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

The idea behind Environmental Control Corp and Hong Yuan Holding 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.