Correlation Between Hengli Industrial and Eastern Communications

Can any of the company-specific risk be diversified away by investing in both Hengli Industrial and Eastern Communications 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 Eastern Communications 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 Eastern Communications Co, you can compare the effects of market volatilities on Hengli Industrial and Eastern Communications 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 Eastern Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hengli Industrial and Eastern Communications.

Diversification Opportunities for Hengli Industrial and Eastern Communications

0.6

Correlation Coefficient

Hengli Industrial  Eastern Communications

Poor diversification

The 3 months correlation between Hengli and Eastern is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Industrial Development and Eastern Communications Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Communications 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 Eastern Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Communications has no effect on the direction of Hengli Industrial i.e., Hengli Industrial and Eastern Communications go up and down completely randomly.

Pair Corralation between Hengli Industrial and Eastern Communications

Assuming the 90 days trading horizon Hengli Industrial Development is expected to under-perform the Eastern Communications. In addition to that, Hengli Industrial is 1.46 times more volatile than Eastern Communications Co. It trades about -0.27 of its total potential returns per unit of risk. Eastern Communications Co is currently generating about -0.11 per unit of volatility. If you would invest  44.00  in Eastern Communications Co on September 28, 2024 and sell it today you would lose (2.00) from holding Eastern Communications Co or give up 4.55% of portfolio value over 90 days.

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

Hengli Industrial Development  vs.  Eastern Communications Co

Hengli Industrial

Risk-Adjusted Performance

6 of 100

Modest

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.

Eastern Communications

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Hengli Industrial and Eastern Communications

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

The idea behind Hengli Industrial Development and Eastern Communications Co 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.