Correlation Between Hangzhou Huawang and Shanghai Ziyan

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

By analyzing existing cross correlation between Hangzhou Huawang New and Shanghai Ziyan Foods, you can compare the effects of market volatilities on Hangzhou Huawang and Shanghai Ziyan 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 Hangzhou Huawang with a short position of Shanghai Ziyan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hangzhou Huawang and Shanghai Ziyan.

Diversification Opportunities for Hangzhou Huawang and Shanghai Ziyan

0.8

Correlation Coefficient

Hangzhou Huawang  Shanghai Ziyan

Very poor diversification

The 3 months correlation between Hangzhou and Shanghai is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Hangzhou Huawang New and Shanghai Ziyan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Ziyan Foods and Hangzhou Huawang 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 Hangzhou Huawang New are associated (or correlated) with Shanghai Ziyan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Ziyan Foods has no effect on the direction of Hangzhou Huawang i.e., Hangzhou Huawang and Shanghai Ziyan go up and down completely randomly.

Pair Corralation between Hangzhou Huawang and Shanghai Ziyan

Assuming the 90 days trading horizon Hangzhou Huawang New is expected to generate 0.97 times more return on investment than Shanghai Ziyan. However, Hangzhou Huawang New is 1.04 times less risky than Shanghai Ziyan. It trades about 0.13 of its potential returns per unit of risk. Shanghai Ziyan Foods is currently generating about 0.11 per unit of risk. If you would invest  1,097  in Hangzhou Huawang New on September 12, 2024 and sell it today you would earn a total of  214.00  from holding Hangzhou Huawang New or generate 19.51% return on investment over 90 days.

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

Hangzhou Huawang New  vs.  Shanghai Ziyan Foods

Hangzhou Huawang New

Risk-Adjusted Performance

9 of 100

OK

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

Shanghai Ziyan Foods

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Hangzhou Huawang and Shanghai Ziyan

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

The idea behind Hangzhou Huawang New and Shanghai Ziyan Foods 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.