Correlation Between Fuzhou Rockchip and Hengli Industrial

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

By analyzing existing cross correlation between Fuzhou Rockchip Electronics and Hengli Industrial Development, you can compare the effects of market volatilities on Fuzhou Rockchip and Hengli Industrial 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 Fuzhou Rockchip with a short position of Hengli Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fuzhou Rockchip and Hengli Industrial.

Diversification Opportunities for Fuzhou Rockchip and Hengli Industrial

0.36

Correlation Coefficient

Fuzhou Rockchip  Hengli Industrial

Weak diversification

The 3 months correlation between Fuzhou and Hengli is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Fuzhou Rockchip Electronics and Hengli Industrial Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengli Industrial and Fuzhou Rockchip 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 Fuzhou Rockchip Electronics are associated (or correlated) with Hengli Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengli Industrial has no effect on the direction of Fuzhou Rockchip i.e., Fuzhou Rockchip and Hengli Industrial go up and down completely randomly.

Pair Corralation between Fuzhou Rockchip and Hengli Industrial

Assuming the 90 days trading horizon Fuzhou Rockchip Electronics is expected to under-perform the Hengli Industrial. But the stock apears to be less risky and, when comparing its historical volatility, Fuzhou Rockchip Electronics is 1.7 times less risky than Hengli Industrial. The stock trades about -0.04 of its potential returns per unit of risk. The Hengli Industrial Development is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  185.00  in Hengli Industrial Development on September 5, 2024 and sell it today you would earn a total of  41.00  from holding Hengli Industrial Development or generate 22.16% return on investment over 90 days.

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

Fuzhou Rockchip Electronics  vs.  Hengli Industrial Development

Fuzhou Rockchip Elec

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fuzhou Rockchip Electronics are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fuzhou Rockchip sustained solid returns over the last few months and may actually be approaching a breakup point.

Hengli Industrial

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Fuzhou Rockchip and Hengli Industrial

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

The idea behind Fuzhou Rockchip Electronics and Hengli Industrial Development 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.