Correlation Between Bright Dairy and Shenyang Huitian

Can any of the company-specific risk be diversified away by investing in both Bright Dairy and Shenyang Huitian 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 Bright Dairy and Shenyang Huitian into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bright Dairy Food and Shenyang Huitian Thermal, you can compare the effects of market volatilities on Bright Dairy and Shenyang Huitian 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 Bright Dairy with a short position of Shenyang Huitian. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bright Dairy and Shenyang Huitian.

Diversification Opportunities for Bright Dairy and Shenyang Huitian

0.78

Correlation Coefficient

Bright Dairy  Shenyang Huitian

Poor diversification

The 3 months correlation between Bright and Shenyang is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Bright Dairy Food and Shenyang Huitian Thermal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenyang Huitian Thermal and Bright Dairy 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 Bright Dairy Food are associated (or correlated) with Shenyang Huitian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenyang Huitian Thermal has no effect on the direction of Bright Dairy i.e., Bright Dairy and Shenyang Huitian go up and down completely randomly.

Pair Corralation between Bright Dairy and Shenyang Huitian

Assuming the 90 days trading horizon Bright Dairy is expected to generate 2.66 times less return on investment than Shenyang Huitian. But when comparing it to its historical volatility, Bright Dairy Food is 1.61 times less risky than Shenyang Huitian. It trades about 0.13 of its potential returns per unit of risk. Shenyang Huitian Thermal is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  285.00  in Shenyang Huitian Thermal on September 20, 2024 and sell it today you would earn a total of  156.00  from holding Shenyang Huitian Thermal or generate 54.74% return on investment over 90 days.

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

Bright Dairy Food  vs.  Shenyang Huitian Thermal

Bright Dairy Food

Risk-Adjusted Performance

9 of 100

OK

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

Shenyang Huitian Thermal

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Huitian Thermal are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenyang Huitian sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bright Dairy and Shenyang Huitian

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

The idea behind Bright Dairy Food and Shenyang Huitian Thermal 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.