Correlation Between Weihai Honglin and Kunshan Guoli

Can any of the company-specific risk be diversified away by investing in both Weihai Honglin and Kunshan Guoli 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 Weihai Honglin and Kunshan Guoli into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Weihai Honglin Electronic and Kunshan Guoli Electronic, you can compare the effects of market volatilities on Weihai Honglin and Kunshan Guoli 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 Weihai Honglin with a short position of Kunshan Guoli. Check out your portfolio center. Please also check ongoing floating volatility patterns of Weihai Honglin and Kunshan Guoli.

Diversification Opportunities for Weihai Honglin and Kunshan Guoli

0.94

Correlation Coefficient

Weihai Honglin  Kunshan Guoli

Almost no diversification

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

Pair Corralation between Weihai Honglin and Kunshan Guoli

Assuming the 90 days trading horizon Weihai Honglin is expected to generate 1.75 times less return on investment than Kunshan Guoli. But when comparing it to its historical volatility, Weihai Honglin Electronic is 1.31 times less risky than Kunshan Guoli. It trades about 0.14 of its potential returns per unit of risk. Kunshan Guoli Electronic is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,897  in Kunshan Guoli Electronic on September 12, 2024 and sell it today you would earn a total of  1,532  from holding Kunshan Guoli Electronic or generate 52.88% return on investment over 90 days.

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

Weihai Honglin Electronic  vs.  Kunshan Guoli Electronic

Weihai Honglin Electronic

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Weihai Honglin Electronic are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Weihai Honglin sustained solid returns over the last few months and may actually be approaching a breakup point.

Kunshan Guoli Electronic

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kunshan Guoli Electronic are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kunshan Guoli sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Weihai Honglin and Kunshan Guoli

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

The idea behind Weihai Honglin Electronic and Kunshan Guoli Electronic 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.