Correlation Between Industrial and Anhui Huaren

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

By analyzing existing cross correlation between Industrial and Commercial and Anhui Huaren Health, you can compare the effects of market volatilities on Industrial and Anhui Huaren 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 Industrial with a short position of Anhui Huaren. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial and Anhui Huaren.

Diversification Opportunities for Industrial and Anhui Huaren

0.57

Correlation Coefficient

Industrial  Anhui Huaren

Very weak diversification

The 3 months correlation between Industrial and Anhui is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and Anhui Huaren Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Huaren Health and Industrial 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 Industrial and Commercial are associated (or correlated) with Anhui Huaren. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Huaren Health has no effect on the direction of Industrial i.e., Industrial and Anhui Huaren go up and down completely randomly.

Pair Corralation between Industrial and Anhui Huaren

Assuming the 90 days trading horizon Industrial is expected to generate 2.15 times less return on investment than Anhui Huaren. But when comparing it to its historical volatility, Industrial and Commercial is 2.63 times less risky than Anhui Huaren. It trades about 0.15 of its potential returns per unit of risk. Anhui Huaren Health is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  954.00  in Anhui Huaren Health on September 23, 2024 and sell it today you would earn a total of  274.00  from holding Anhui Huaren Health or generate 28.72% return on investment over 90 days.

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

Industrial and Commercial  vs.  Anhui Huaren Health

Industrial and Commercial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial sustained solid returns over the last few months and may actually be approaching a breakup point.

Anhui Huaren Health

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Industrial and Anhui Huaren

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

The idea behind Industrial and Commercial and Anhui Huaren Health 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.