Correlation Between Hubei Dinglong and XinJiang GuoTong

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

By analyzing existing cross correlation between Hubei Dinglong Chemical and XinJiang GuoTong Pipeline, you can compare the effects of market volatilities on Hubei Dinglong and XinJiang GuoTong 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 Hubei Dinglong with a short position of XinJiang GuoTong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Dinglong and XinJiang GuoTong.

Diversification Opportunities for Hubei Dinglong and XinJiang GuoTong

0.73

Correlation Coefficient

Hubei Dinglong  XinJiang GuoTong

Poor diversification

The 3 months correlation between Hubei and XinJiang is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Dinglong Chemical and XinJiang GuoTong Pipeline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XinJiang GuoTong Pipeline and Hubei Dinglong 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 Hubei Dinglong Chemical are associated (or correlated) with XinJiang GuoTong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XinJiang GuoTong Pipeline has no effect on the direction of Hubei Dinglong i.e., Hubei Dinglong and XinJiang GuoTong go up and down completely randomly.

Pair Corralation between Hubei Dinglong and XinJiang GuoTong

Assuming the 90 days trading horizon Hubei Dinglong is expected to generate 5.13 times less return on investment than XinJiang GuoTong. But when comparing it to its historical volatility, Hubei Dinglong Chemical is 2.14 times less risky than XinJiang GuoTong. It trades about 0.08 of its potential returns per unit of risk. XinJiang GuoTong Pipeline is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  898.00  in XinJiang GuoTong Pipeline on September 23, 2024 and sell it today you would earn a total of  152.00  from holding XinJiang GuoTong Pipeline or generate 16.93% return on investment over 90 days.

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

Hubei Dinglong Chemical  vs.  XinJiang GuoTong Pipeline

Hubei Dinglong Chemical

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Dinglong Chemical are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Dinglong sustained solid returns over the last few months and may actually be approaching a breakup point.

XinJiang GuoTong Pipeline

Risk-Adjusted Performance

16 of 100

Solid

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

Pair Trading with Hubei Dinglong and XinJiang GuoTong

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

The idea behind Hubei Dinglong Chemical and XinJiang GuoTong Pipeline 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.