Correlation Between Hunan Investment and Changchun

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

By analyzing existing cross correlation between Hunan Investment Group and Changchun UP Optotech, you can compare the effects of market volatilities on Hunan Investment and Changchun 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 Hunan Investment with a short position of Changchun. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hunan Investment and Changchun.

Diversification Opportunities for Hunan Investment and Changchun

0.82

Correlation Coefficient

Hunan Investment  Changchun

Very poor diversification

The 3 months correlation between Hunan and Changchun is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Hunan Investment Group and Changchun UP Optotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun UP Optotech and Hunan Investment 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 Hunan Investment Group are associated (or correlated) with Changchun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun UP Optotech has no effect on the direction of Hunan Investment i.e., Hunan Investment and Changchun go up and down completely randomly.

Pair Corralation between Hunan Investment and Changchun

Assuming the 90 days trading horizon Hunan Investment is expected to generate 1.48 times less return on investment than Changchun. But when comparing it to its historical volatility, Hunan Investment Group is 1.3 times less risky than Changchun. It trades about 0.21 of its potential returns per unit of risk. Changchun UP Optotech is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  2,576  in Changchun UP Optotech on September 5, 2024 and sell it today you would earn a total of  1,956  from holding Changchun UP Optotech or generate 75.93% return on investment over 90 days.

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

Hunan Investment Group  vs.  Changchun UP Optotech

Hunan Investment

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Investment Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Investment sustained solid returns over the last few months and may actually be approaching a breakup point.

Changchun UP Optotech

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun UP Optotech are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hunan Investment and Changchun

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

The idea behind Hunan Investment Group and Changchun UP Optotech 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.