Correlation Between Huaneng Lancang and China Baoan

Can any of the company-specific risk be diversified away by investing in both Huaneng Lancang and China Baoan 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 Huaneng Lancang and China Baoan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Huaneng Lancang River and China Baoan Group, you can compare the effects of market volatilities on Huaneng Lancang and China Baoan 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 Huaneng Lancang with a short position of China Baoan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huaneng Lancang and China Baoan.

Diversification Opportunities for Huaneng Lancang and China Baoan

-0.33

Correlation Coefficient

Huaneng Lancang  China Baoan

Very good diversification

The 3 months correlation between Huaneng and China is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Huaneng Lancang River and China Baoan Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Baoan Group and Huaneng Lancang 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 Huaneng Lancang River are associated (or correlated) with China Baoan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Baoan Group has no effect on the direction of Huaneng Lancang i.e., Huaneng Lancang and China Baoan go up and down completely randomly.

Pair Corralation between Huaneng Lancang and China Baoan

Assuming the 90 days trading horizon Huaneng Lancang River is expected to under-perform the China Baoan. But the stock apears to be less risky and, when comparing its historical volatility, Huaneng Lancang River is 2.14 times less risky than China Baoan. The stock trades about -0.08 of its potential returns per unit of risk. The China Baoan Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  740.00  in China Baoan Group on September 23, 2024 and sell it today you would earn a total of  210.00  from holding China Baoan Group or generate 28.38% return on investment over 90 days.

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

Huaneng Lancang River  vs.  China Baoan Group

Huaneng Lancang River

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaneng Lancang River has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

China Baoan Group

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Huaneng Lancang and China Baoan

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

The idea behind Huaneng Lancang River and China Baoan Group 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.