Correlation Between Eastern Air and Hangzhou Weiguang

Can any of the company-specific risk be diversified away by investing in both Eastern Air and Hangzhou Weiguang 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 Eastern Air and Hangzhou Weiguang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eastern Air Logistics and Hangzhou Weiguang Electronic, you can compare the effects of market volatilities on Eastern Air and Hangzhou Weiguang 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 Eastern Air with a short position of Hangzhou Weiguang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern Air and Hangzhou Weiguang.

Diversification Opportunities for Eastern Air and Hangzhou Weiguang

0.17

Correlation Coefficient

Eastern Air  Hangzhou Weiguang

Average diversification

The 3 months correlation between Eastern and Hangzhou is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Air Logistics and Hangzhou Weiguang Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Weiguang and Eastern Air 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 Eastern Air Logistics are associated (or correlated) with Hangzhou Weiguang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Weiguang has no effect on the direction of Eastern Air i.e., Eastern Air and Hangzhou Weiguang go up and down completely randomly.

Pair Corralation between Eastern Air and Hangzhou Weiguang

Assuming the 90 days trading horizon Eastern Air Logistics is expected to under-perform the Hangzhou Weiguang. But the stock apears to be less risky and, when comparing its historical volatility, Eastern Air Logistics is 1.04 times less risky than Hangzhou Weiguang. The stock trades about -0.04 of its potential returns per unit of risk. The Hangzhou Weiguang Electronic is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,927  in Hangzhou Weiguang Electronic on September 28, 2024 and sell it today you would earn a total of  613.00  from holding Hangzhou Weiguang Electronic or generate 31.81% return on investment over 90 days.

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

Eastern Air Logistics  vs.  Hangzhou Weiguang Electronic

Eastern Air Logistics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Air Logistics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Eastern Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hangzhou Weiguang

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Eastern Air and Hangzhou Weiguang

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

The idea behind Eastern Air Logistics and Hangzhou Weiguang Electronic 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.