Correlation Between Wuhan Yangtze and HeNan Splendor

Can any of the company-specific risk be diversified away by investing in both Wuhan Yangtze and HeNan Splendor 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 Wuhan Yangtze and HeNan Splendor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wuhan Yangtze Communication and HeNan Splendor Science, you can compare the effects of market volatilities on Wuhan Yangtze and HeNan Splendor 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 Wuhan Yangtze with a short position of HeNan Splendor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wuhan Yangtze and HeNan Splendor.

Diversification Opportunities for Wuhan Yangtze and HeNan Splendor

0.87

Correlation Coefficient

Wuhan Yangtze  HeNan Splendor

Very poor diversification

The 3 months correlation between Wuhan and HeNan is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Wuhan Yangtze Communication and HeNan Splendor Science in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HeNan Splendor Science and Wuhan Yangtze 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 Wuhan Yangtze Communication are associated (or correlated) with HeNan Splendor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HeNan Splendor Science has no effect on the direction of Wuhan Yangtze i.e., Wuhan Yangtze and HeNan Splendor go up and down completely randomly.

Pair Corralation between Wuhan Yangtze and HeNan Splendor

Assuming the 90 days trading horizon Wuhan Yangtze Communication is expected to generate 1.33 times more return on investment than HeNan Splendor. However, Wuhan Yangtze is 1.33 times more volatile than HeNan Splendor Science. It trades about 0.24 of its potential returns per unit of risk. HeNan Splendor Science is currently generating about 0.16 per unit of risk. If you would invest  1,545  in Wuhan Yangtze Communication on September 5, 2024 and sell it today you would earn a total of  1,297  from holding Wuhan Yangtze Communication or generate 83.95% return on investment over 90 days.

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

Wuhan Yangtze Communication  vs.  HeNan Splendor Science

Wuhan Yangtze Commun

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wuhan Yangtze Communication are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuhan Yangtze sustained solid returns over the last few months and may actually be approaching a breakup point.

HeNan Splendor Science

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Wuhan Yangtze and HeNan Splendor

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

The idea behind Wuhan Yangtze Communication and HeNan Splendor Science 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.