Correlation Between Hubei Xingfa and Jiangxi Lianchuang

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

By analyzing existing cross correlation between Hubei Xingfa Chemicals and Jiangxi Lianchuang Opto electronic, you can compare the effects of market volatilities on Hubei Xingfa and Jiangxi Lianchuang 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 Xingfa with a short position of Jiangxi Lianchuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Xingfa and Jiangxi Lianchuang.

Diversification Opportunities for Hubei Xingfa and Jiangxi Lianchuang

0.5

Correlation Coefficient

Hubei Xingfa  Jiangxi Lianchuang

Very weak diversification

The 3 months correlation between Hubei and Jiangxi is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Xingfa Chemicals and Jiangxi Lianchuang Opto electr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangxi Lianchuang Opto and Hubei Xingfa 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 Xingfa Chemicals are associated (or correlated) with Jiangxi Lianchuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangxi Lianchuang Opto has no effect on the direction of Hubei Xingfa i.e., Hubei Xingfa and Jiangxi Lianchuang go up and down completely randomly.

Pair Corralation between Hubei Xingfa and Jiangxi Lianchuang

Assuming the 90 days trading horizon Hubei Xingfa Chemicals is expected to under-perform the Jiangxi Lianchuang. But the stock apears to be less risky and, when comparing its historical volatility, Hubei Xingfa Chemicals is 2.4 times less risky than Jiangxi Lianchuang. The stock trades about -0.04 of its potential returns per unit of risk. The Jiangxi Lianchuang Opto electronic is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,965  in Jiangxi Lianchuang Opto electronic on October 1, 2024 and sell it today you would earn a total of  2,035  from holding Jiangxi Lianchuang Opto electronic or generate 68.63% return on investment over 90 days.

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

Hubei Xingfa Chemicals  vs.  Jiangxi Lianchuang Opto electr

Hubei Xingfa Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hubei Xingfa Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hubei Xingfa is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jiangxi Lianchuang Opto

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Hubei Xingfa and Jiangxi Lianchuang

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

The idea behind Hubei Xingfa Chemicals and Jiangxi Lianchuang Opto 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.

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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..