Correlation Between Hengli Industrial and Ningbo Homelink

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

By analyzing existing cross correlation between Hengli Industrial Development and Ningbo Homelink Eco iTech, you can compare the effects of market volatilities on Hengli Industrial and Ningbo Homelink 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 Hengli Industrial with a short position of Ningbo Homelink. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hengli Industrial and Ningbo Homelink.

Diversification Opportunities for Hengli Industrial and Ningbo Homelink

0.56

Correlation Coefficient

Hengli Industrial  Ningbo Homelink

Very weak diversification

The 3 months correlation between Hengli and Ningbo is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Industrial Development and Ningbo Homelink Eco iTech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Homelink Eco and Hengli Industrial 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 Hengli Industrial Development are associated (or correlated) with Ningbo Homelink. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Homelink Eco has no effect on the direction of Hengli Industrial i.e., Hengli Industrial and Ningbo Homelink go up and down completely randomly.

Pair Corralation between Hengli Industrial and Ningbo Homelink

Assuming the 90 days trading horizon Hengli Industrial Development is expected to generate 1.07 times more return on investment than Ningbo Homelink. However, Hengli Industrial is 1.07 times more volatile than Ningbo Homelink Eco iTech. It trades about 0.08 of its potential returns per unit of risk. Ningbo Homelink Eco iTech is currently generating about 0.08 per unit of risk. If you would invest  174.00  in Hengli Industrial Development on September 26, 2024 and sell it today you would earn a total of  27.00  from holding Hengli Industrial Development or generate 15.52% return on investment over 90 days.

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

Hengli Industrial Development  vs.  Ningbo Homelink Eco iTech

Hengli Industrial

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hengli Industrial Development are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengli Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Ningbo Homelink Eco

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Homelink Eco iTech are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Homelink sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hengli Industrial and Ningbo Homelink

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

The idea behind Hengli Industrial Development and Ningbo Homelink Eco iTech 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.