Correlation Between Huaxia Eye and Liuzhou Chemical

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

By analyzing existing cross correlation between Huaxia Eye Hospital and Liuzhou Chemical Industry, you can compare the effects of market volatilities on Huaxia Eye and Liuzhou 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 Huaxia Eye with a short position of Liuzhou Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huaxia Eye and Liuzhou Chemical.

Diversification Opportunities for Huaxia Eye and Liuzhou Chemical

0.53

Correlation Coefficient

Huaxia Eye  Liuzhou Chemical

Very weak diversification

The 3 months correlation between Huaxia and Liuzhou is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Huaxia Eye Hospital and Liuzhou Chemical Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liuzhou Chemical Industry and Huaxia Eye 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 Huaxia Eye Hospital are associated (or correlated) with Liuzhou Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liuzhou Chemical Industry has no effect on the direction of Huaxia Eye i.e., Huaxia Eye and Liuzhou Chemical go up and down completely randomly.

Pair Corralation between Huaxia Eye and Liuzhou Chemical

Assuming the 90 days trading horizon Huaxia Eye Hospital is expected to under-perform the Liuzhou Chemical. In addition to that, Huaxia Eye is 1.06 times more volatile than Liuzhou Chemical Industry. It trades about -0.07 of its total potential returns per unit of risk. Liuzhou Chemical Industry is currently generating about 0.0 per unit of volatility. If you would invest  332.00  in Liuzhou Chemical Industry on September 28, 2024 and sell it today you would lose (49.00) from holding Liuzhou Chemical Industry or give up 14.76% of portfolio value over 90 days.

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

Huaxia Eye Hospital  vs.  Liuzhou Chemical Industry

Huaxia Eye Hospital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaxia Eye Hospital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Liuzhou Chemical Industry

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liuzhou Chemical Industry are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liuzhou Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Huaxia Eye and Liuzhou Chemical

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

The idea behind Huaxia Eye Hospital and Liuzhou Chemical Industry 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.