Correlation Between Harbin Hatou and Shaanxi Energy

Can any of the company-specific risk be diversified away by investing in both Harbin Hatou and Shaanxi Energy 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 Harbin Hatou and Shaanxi Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Harbin Hatou Investment and Shaanxi Energy Investment, you can compare the effects of market volatilities on Harbin Hatou and Shaanxi Energy 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 Harbin Hatou with a short position of Shaanxi Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Harbin Hatou and Shaanxi Energy.

Diversification Opportunities for Harbin Hatou and Shaanxi Energy

0.5

Correlation Coefficient

Harbin Hatou  Shaanxi Energy

Very weak diversification

The 3 months correlation between Harbin and Shaanxi is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Harbin Hatou Investment and Shaanxi Energy Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Energy Investment and Harbin Hatou 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 Harbin Hatou Investment are associated (or correlated) with Shaanxi Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Energy Investment has no effect on the direction of Harbin Hatou i.e., Harbin Hatou and Shaanxi Energy go up and down completely randomly.

Pair Corralation between Harbin Hatou and Shaanxi Energy

Assuming the 90 days trading horizon Harbin Hatou Investment is expected to generate 2.05 times more return on investment than Shaanxi Energy. However, Harbin Hatou is 2.05 times more volatile than Shaanxi Energy Investment. It trades about 0.2 of its potential returns per unit of risk. Shaanxi Energy Investment is currently generating about 0.11 per unit of risk. If you would invest  472.00  in Harbin Hatou Investment on September 13, 2024 and sell it today you would earn a total of  262.00  from holding Harbin Hatou Investment or generate 55.51% return on investment over 90 days.

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

Harbin Hatou Investment  vs.  Shaanxi Energy Investment

Harbin Hatou Investment

Risk-Adjusted Performance

16 of 100

Solid

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

Shaanxi Energy Investment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Energy Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaanxi Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Harbin Hatou and Shaanxi Energy

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

The idea behind Harbin Hatou Investment and Shaanxi Energy Investment 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.

Check out your portfolio center.

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.