Correlation Between CHINA HUARONG and IMPERIAL TOBACCO

Can any of the company-specific risk be diversified away by investing in both CHINA HUARONG and IMPERIAL TOBACCO 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 CHINA HUARONG and IMPERIAL TOBACCO into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CHINA HUARONG ENERHD 50 and IMPERIAL TOBACCO , you can compare the effects of market volatilities on CHINA HUARONG and IMPERIAL TOBACCO 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 CHINA HUARONG with a short position of IMPERIAL TOBACCO. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA HUARONG and IMPERIAL TOBACCO.

Diversification Opportunities for CHINA HUARONG and IMPERIAL TOBACCO

0.07

Correlation Coefficient

CHINA HUARONG  IMPERIAL TOBACCO

Significant diversification

The 3 months correlation between CHINA and IMPERIAL is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding CHINA HUARONG ENERHD 50 and IMPERIAL TOBACCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IMPERIAL TOBACCO and CHINA HUARONG 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 CHINA HUARONG ENERHD 50 are associated (or correlated) with IMPERIAL TOBACCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IMPERIAL TOBACCO has no effect on the direction of CHINA HUARONG i.e., CHINA HUARONG and IMPERIAL TOBACCO go up and down completely randomly.

Pair Corralation between CHINA HUARONG and IMPERIAL TOBACCO

Assuming the 90 days trading horizon CHINA HUARONG ENERHD 50 is expected to generate 23.53 times more return on investment than IMPERIAL TOBACCO. However, CHINA HUARONG is 23.53 times more volatile than IMPERIAL TOBACCO . It trades about 0.14 of its potential returns per unit of risk. IMPERIAL TOBACCO is currently generating about 0.25 per unit of risk. If you would invest  0.05  in CHINA HUARONG ENERHD 50 on September 16, 2024 and sell it today you would earn a total of  0.10  from holding CHINA HUARONG ENERHD 50 or generate 200.0% return on investment over 90 days.

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

CHINA HUARONG ENERHD 50  vs.  IMPERIAL TOBACCO

CHINA HUARONG ENERHD

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA HUARONG reported solid returns over the last few months and may actually be approaching a breakup point.

IMPERIAL TOBACCO

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, IMPERIAL TOBACCO unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CHINA HUARONG and IMPERIAL TOBACCO

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

The idea behind CHINA HUARONG ENERHD 50 and IMPERIAL TOBACCO 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.