Correlation Between Hang Xiao and China Everbright

Can any of the company-specific risk be diversified away by investing in both Hang Xiao and China Everbright 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 Hang Xiao and China Everbright into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hang Xiao Steel and China Everbright Bank, you can compare the effects of market volatilities on Hang Xiao and China Everbright 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 Hang Xiao with a short position of China Everbright. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hang Xiao and China Everbright.

Diversification Opportunities for Hang Xiao and China Everbright

0.85

Correlation Coefficient

Hang Xiao  China Everbright

Very poor diversification

The 3 months correlation between Hang and China is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Hang Xiao Steel and China Everbright Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Everbright Bank and Hang Xiao 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 Hang Xiao Steel are associated (or correlated) with China Everbright. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Everbright Bank has no effect on the direction of Hang Xiao i.e., Hang Xiao and China Everbright go up and down completely randomly.

Pair Corralation between Hang Xiao and China Everbright

Assuming the 90 days trading horizon Hang Xiao Steel is expected to generate 1.59 times more return on investment than China Everbright. However, Hang Xiao is 1.59 times more volatile than China Everbright Bank. It trades about 0.19 of its potential returns per unit of risk. China Everbright Bank is currently generating about 0.18 per unit of risk. If you would invest  214.00  in Hang Xiao Steel on September 15, 2024 and sell it today you would earn a total of  79.00  from holding Hang Xiao Steel or generate 36.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.31%
Values	Daily Returns

Hang Xiao Steel  vs.  China Everbright Bank

Hang Xiao Steel

Risk-Adjusted Performance

15 of 100

Good

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

China Everbright Bank

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Everbright Bank are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Everbright sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hang Xiao and China Everbright

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

The idea behind Hang Xiao Steel and China Everbright Bank 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.