Correlation Between Huafa Industrial and Hubei Radio

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

By analyzing existing cross correlation between Huafa Industrial Co and Hubei Radio and, you can compare the effects of market volatilities on Huafa Industrial and Hubei Radio 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 Huafa Industrial with a short position of Hubei Radio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huafa Industrial and Hubei Radio.

Diversification Opportunities for Huafa Industrial and Hubei Radio

0.82

Correlation Coefficient

Huafa Industrial  Hubei Radio

Very poor diversification

The 3 months correlation between Huafa and Hubei is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Huafa Industrial Co and Hubei Radio and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Radio and Huafa Industrial 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 Huafa Industrial Co are associated (or correlated) with Hubei Radio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Radio has no effect on the direction of Huafa Industrial i.e., Huafa Industrial and Hubei Radio go up and down completely randomly.

Pair Corralation between Huafa Industrial and Hubei Radio

Assuming the 90 days trading horizon Huafa Industrial Co is expected to generate 0.95 times more return on investment than Hubei Radio. However, Huafa Industrial Co is 1.05 times less risky than Hubei Radio. It trades about 0.0 of its potential returns per unit of risk. Hubei Radio and is currently generating about -0.02 per unit of risk. If you would invest  721.00  in Huafa Industrial Co on September 4, 2024 and sell it today you would lose (45.00) from holding Huafa Industrial Co or give up 6.24% of portfolio value over 90 days.

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

Huafa Industrial Co  vs.  Hubei Radio and

Huafa Industrial

Risk-Adjusted Performance

10 of 100

OK

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

Hubei Radio

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Radio and are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Radio sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Huafa Industrial and Hubei Radio

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

The idea behind Huafa Industrial Co and Hubei Radio and 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.