Correlation Between Huasi Agricultural and Shandong Sanyuan

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Can any of the company-specific risk be diversified away by investing in both Huasi Agricultural and Shandong Sanyuan 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 Huasi Agricultural and Shandong Sanyuan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Huasi Agricultural Development and Shandong Sanyuan Biotechnology, you can compare the effects of market volatilities on Huasi Agricultural and Shandong Sanyuan 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 Huasi Agricultural with a short position of Shandong Sanyuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huasi Agricultural and Shandong Sanyuan.

Diversification Opportunities for Huasi Agricultural and Shandong Sanyuan

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Huasi and Shandong is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Huasi Agricultural Development and Shandong Sanyuan Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Sanyuan Bio and Huasi Agricultural 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 Huasi Agricultural Development are associated (or correlated) with Shandong Sanyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Sanyuan Bio has no effect on the direction of Huasi Agricultural i.e., Huasi Agricultural and Shandong Sanyuan go up and down completely randomly.

Pair Corralation between Huasi Agricultural and Shandong Sanyuan

Assuming the 90 days trading horizon Huasi Agricultural Development is expected to generate 1.3 times more return on investment than Shandong Sanyuan. However, Huasi Agricultural is 1.3 times more volatile than Shandong Sanyuan Biotechnology. It trades about 0.08 of its potential returns per unit of risk. Shandong Sanyuan Biotechnology is currently generating about -0.11 per unit of risk. If you would invest  404.00  in Huasi Agricultural Development on August 28, 2024 and sell it today you would earn a total of  15.00  from holding Huasi Agricultural Development or generate 3.71% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Huasi Agricultural Development  vs.  Shandong Sanyuan Biotechnology

 Performance 
       Timeline  
Huasi Agricultural 

Risk-Adjusted Performance

18 of 100

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

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Sanyuan Biotechnology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Sanyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Huasi Agricultural and Shandong Sanyuan Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Huasi Agricultural and Shandong Sanyuan

The main advantage of trading using opposite Huasi Agricultural and Shandong Sanyuan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Huasi Agricultural position performs unexpectedly, Shandong Sanyuan 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 Shandong Sanyuan will offset losses from the drop in Shandong Sanyuan's long position.
The idea behind Huasi Agricultural Development and Shandong Sanyuan Biotechnology 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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