Correlation Between Hengdian Entertainment and Hangzhou Guotai

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

By analyzing existing cross correlation between Hengdian Entertainment Co and Hangzhou Guotai Environmental, you can compare the effects of market volatilities on Hengdian Entertainment and Hangzhou Guotai 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 Hengdian Entertainment with a short position of Hangzhou Guotai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hengdian Entertainment and Hangzhou Guotai.

Diversification Opportunities for Hengdian Entertainment and Hangzhou Guotai

0.71

Correlation Coefficient

Hengdian Entertainment  Hangzhou Guotai

Poor diversification

The 3 months correlation between Hengdian and Hangzhou is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Hengdian Entertainment Co and Hangzhou Guotai Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Guotai Envi and Hengdian Entertainment 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 Hengdian Entertainment Co are associated (or correlated) with Hangzhou Guotai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Guotai Envi has no effect on the direction of Hengdian Entertainment i.e., Hengdian Entertainment and Hangzhou Guotai go up and down completely randomly.

Pair Corralation between Hengdian Entertainment and Hangzhou Guotai

Assuming the 90 days trading horizon Hengdian Entertainment Co is expected to generate 1.37 times more return on investment than Hangzhou Guotai. However, Hengdian Entertainment is 1.37 times more volatile than Hangzhou Guotai Environmental. It trades about 0.13 of its potential returns per unit of risk. Hangzhou Guotai Environmental is currently generating about 0.06 per unit of risk. If you would invest  1,179  in Hengdian Entertainment Co on September 27, 2024 and sell it today you would earn a total of  371.00  from holding Hengdian Entertainment Co or generate 31.47% return on investment over 90 days.

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

Hengdian Entertainment Co  vs.  Hangzhou Guotai Environmental

Hengdian Entertainment

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hengdian Entertainment Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengdian Entertainment sustained solid returns over the last few months and may actually be approaching a breakup point.

Hangzhou Guotai Envi

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hangzhou Guotai Environmental are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hangzhou Guotai may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hengdian Entertainment and Hangzhou Guotai

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

The idea behind Hengdian Entertainment Co and Hangzhou Guotai Environmental 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.