Correlation Between Commercial Metals and Huadi International

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

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

Diversification Opportunities for Commercial Metals and Huadi International

-0.45

Correlation Coefficient

Commercial Metals  Huadi International

Very good diversification

The 3 months correlation between Commercial and Huadi is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Commercial Metals and Huadi International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huadi International and Commercial Metals 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 Commercial Metals are associated (or correlated) with Huadi International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huadi International has no effect on the direction of Commercial Metals i.e., Commercial Metals and Huadi International go up and down completely randomly.

Pair Corralation between Commercial Metals and Huadi International

Considering the 90-day investment horizon Commercial Metals is expected to generate 0.52 times more return on investment than Huadi International. However, Commercial Metals is 1.93 times less risky than Huadi International. It trades about 0.1 of its potential returns per unit of risk. Huadi International Group is currently generating about 0.0 per unit of risk. If you would invest  5,126  in Commercial Metals on September 14, 2024 and sell it today you would earn a total of  735.00  from holding Commercial Metals or generate 14.34% return on investment over 90 days.

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

Commercial Metals  vs.  Huadi International Group

Commercial Metals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commercial Metals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, Commercial Metals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Huadi International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huadi International Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Huadi International is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Commercial Metals and Huadi International

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

The idea behind Commercial Metals and Huadi International Group 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.