Correlation Between Hubei Geoway and Aofu Environmental

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

By analyzing existing cross correlation between Hubei Geoway Investment and Aofu Environmental Technology, you can compare the effects of market volatilities on Hubei Geoway and Aofu Environmental 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 Geoway with a short position of Aofu Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Geoway and Aofu Environmental.

Diversification Opportunities for Hubei Geoway and Aofu Environmental

0.27

Correlation Coefficient

Hubei Geoway  Aofu Environmental

Modest diversification

The 3 months correlation between Hubei and Aofu is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Geoway Investment and Aofu Environmental Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aofu Environmental and Hubei Geoway 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 Geoway Investment are associated (or correlated) with Aofu Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aofu Environmental has no effect on the direction of Hubei Geoway i.e., Hubei Geoway and Aofu Environmental go up and down completely randomly.

Pair Corralation between Hubei Geoway and Aofu Environmental

Assuming the 90 days trading horizon Hubei Geoway is expected to generate 2.51 times less return on investment than Aofu Environmental. But when comparing it to its historical volatility, Hubei Geoway Investment is 1.24 times less risky than Aofu Environmental. It trades about 0.12 of its potential returns per unit of risk. Aofu Environmental Technology is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  734.00  in Aofu Environmental Technology on September 15, 2024 and sell it today you would earn a total of  492.00  from holding Aofu Environmental Technology or generate 67.03% return on investment over 90 days.

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

Hubei Geoway Investment  vs.  Aofu Environmental Technology

Hubei Geoway Investment

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Geoway Investment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Geoway sustained solid returns over the last few months and may actually be approaching a breakup point.

Aofu Environmental

Risk-Adjusted Performance

19 of 100

Solid

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

Pair Trading with Hubei Geoway and Aofu Environmental

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

The idea behind Hubei Geoway Investment and Aofu Environmental Technology 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..