Correlation Between Huafa Industrial and Sinomach Automobile

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Can any of the company-specific risk be diversified away by investing in both Huafa Industrial and Sinomach Automobile 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 Sinomach Automobile 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 Sinomach Automobile Co, you can compare the effects of market volatilities on Huafa Industrial and Sinomach Automobile 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 Sinomach Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huafa Industrial and Sinomach Automobile.

Diversification Opportunities for Huafa Industrial and Sinomach Automobile

0.73
  Correlation Coefficient

Poor diversification

The 3 months correlation between Huafa and Sinomach is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Huafa Industrial Co and Sinomach Automobile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinomach Automobile 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 Sinomach Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinomach Automobile has no effect on the direction of Huafa Industrial i.e., Huafa Industrial and Sinomach Automobile go up and down completely randomly.

Pair Corralation between Huafa Industrial and Sinomach Automobile

Assuming the 90 days trading horizon Huafa Industrial Co is expected to under-perform the Sinomach Automobile. But the stock apears to be less risky and, when comparing its historical volatility, Huafa Industrial Co is 1.18 times less risky than Sinomach Automobile. The stock trades about -0.02 of its potential returns per unit of risk. The Sinomach Automobile Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  777.00  in Sinomach Automobile Co on September 21, 2024 and sell it today you would lose (68.00) from holding Sinomach Automobile Co or give up 8.75% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Huafa Industrial Co  vs.  Sinomach Automobile Co

 Performance 
       Timeline  
Huafa Industrial 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Huafa Industrial Co are ranked lower than 5 (%) 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.
Sinomach Automobile 

Risk-Adjusted Performance

12 of 100

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

Huafa Industrial and Sinomach Automobile Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Huafa Industrial and Sinomach Automobile

The main advantage of trading using opposite Huafa Industrial and Sinomach Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Huafa Industrial position performs unexpectedly, Sinomach Automobile 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 Sinomach Automobile will offset losses from the drop in Sinomach Automobile's long position.
The idea behind Huafa Industrial Co and Sinomach Automobile Co 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.

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