Correlation Between Armada Hflr and Huadong Medicine

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

By analyzing existing cross correlation between Armada Hflr Pr and Huadong Medicine Co, you can compare the effects of market volatilities on Armada Hflr and Huadong Medicine 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 Armada Hflr with a short position of Huadong Medicine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Armada Hflr and Huadong Medicine.

Diversification Opportunities for Armada Hflr and Huadong Medicine

-0.5

Correlation Coefficient

Armada Hflr  Huadong Medicine

Very good diversification

The 3 months correlation between Armada and Huadong is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Armada Hflr Pr and Huadong Medicine Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huadong Medicine and Armada Hflr 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 Armada Hflr Pr are associated (or correlated) with Huadong Medicine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huadong Medicine has no effect on the direction of Armada Hflr i.e., Armada Hflr and Huadong Medicine go up and down completely randomly.

Pair Corralation between Armada Hflr and Huadong Medicine

Considering the 90-day investment horizon Armada Hflr Pr is expected to generate 0.8 times more return on investment than Huadong Medicine. However, Armada Hflr Pr is 1.25 times less risky than Huadong Medicine. It trades about 0.01 of its potential returns per unit of risk. Huadong Medicine Co is currently generating about -0.01 per unit of risk. If you would invest  1,022  in Armada Hflr Pr on September 23, 2024 and sell it today you would earn a total of  3.00  from holding Armada Hflr Pr or generate 0.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.18%
Values	Daily Returns

Armada Hflr Pr  vs.  Huadong Medicine Co

Armada Hflr Pr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Armada Hflr Pr has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Huadong Medicine

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Huadong Medicine Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Huadong Medicine sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Armada Hflr and Huadong Medicine

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

The idea behind Armada Hflr Pr and Huadong Medicine Co 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.