Correlation Between HengFeng Information and Lier Chemical

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

By analyzing existing cross correlation between HengFeng Information Technology and Lier Chemical Co, you can compare the effects of market volatilities on HengFeng Information and Lier Chemical 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 HengFeng Information with a short position of Lier Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of HengFeng Information and Lier Chemical.

Diversification Opportunities for HengFeng Information and Lier Chemical

0.94

Correlation Coefficient

HengFeng Information  Lier Chemical

Almost no diversification

The 3 months correlation between HengFeng and Lier is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding HengFeng Information Technolog and Lier Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lier Chemical and HengFeng Information 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 HengFeng Information Technology are associated (or correlated) with Lier Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lier Chemical has no effect on the direction of HengFeng Information i.e., HengFeng Information and Lier Chemical go up and down completely randomly.

Pair Corralation between HengFeng Information and Lier Chemical

Assuming the 90 days trading horizon HengFeng Information Technology is expected to generate 1.78 times more return on investment than Lier Chemical. However, HengFeng Information is 1.78 times more volatile than Lier Chemical Co. It trades about 0.14 of its potential returns per unit of risk. Lier Chemical Co is currently generating about 0.14 per unit of risk. If you would invest  944.00  in HengFeng Information Technology on September 19, 2024 and sell it today you would earn a total of  390.00  from holding HengFeng Information Technology or generate 41.31% return on investment over 90 days.

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

HengFeng Information Technolog  vs.  Lier Chemical Co

HengFeng Information

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HengFeng Information Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HengFeng Information sustained solid returns over the last few months and may actually be approaching a breakup point.

Lier Chemical

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lier Chemical Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lier Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HengFeng Information and Lier Chemical

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

The idea behind HengFeng Information Technology and Lier Chemical 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.