Correlation Between HeNan Splendor and Tianjin Pengling

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

By analyzing existing cross correlation between HeNan Splendor Science and Tianjin Pengling Rubber, you can compare the effects of market volatilities on HeNan Splendor and Tianjin Pengling 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 HeNan Splendor with a short position of Tianjin Pengling. Check out your portfolio center. Please also check ongoing floating volatility patterns of HeNan Splendor and Tianjin Pengling.

Diversification Opportunities for HeNan Splendor and Tianjin Pengling

0.72

Correlation Coefficient

HeNan Splendor  Tianjin Pengling

Poor diversification

The 3 months correlation between HeNan and Tianjin is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding HeNan Splendor Science and Tianjin Pengling Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianjin Pengling Rubber and HeNan Splendor 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 HeNan Splendor Science are associated (or correlated) with Tianjin Pengling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianjin Pengling Rubber has no effect on the direction of HeNan Splendor i.e., HeNan Splendor and Tianjin Pengling go up and down completely randomly.

Pair Corralation between HeNan Splendor and Tianjin Pengling

Assuming the 90 days trading horizon HeNan Splendor Science is expected to generate 1.9 times more return on investment than Tianjin Pengling. However, HeNan Splendor is 1.9 times more volatile than Tianjin Pengling Rubber. It trades about -0.01 of its potential returns per unit of risk. Tianjin Pengling Rubber is currently generating about -0.05 per unit of risk. If you would invest  1,009  in HeNan Splendor Science on September 27, 2024 and sell it today you would lose (28.00) from holding HeNan Splendor Science or give up 2.78% of portfolio value over 90 days.

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

HeNan Splendor Science  vs.  Tianjin Pengling Rubber

HeNan Splendor Science

Risk-Adjusted Performance

6 of 100

Modest

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

Tianjin Pengling Rubber

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Pengling Rubber are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tianjin Pengling sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HeNan Splendor and Tianjin Pengling

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

The idea behind HeNan Splendor Science and Tianjin Pengling Rubber 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.