Correlation Between Houston Natural and China Resources
Can any of the company-specific risk be diversified away by investing in both Houston Natural and China Resources 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 Houston Natural and China Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Houston Natural Resources and China Resources Power, you can compare the effects of market volatilities on Houston Natural and China Resources 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 Houston Natural with a short position of China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Houston Natural and China Resources.
Diversification Opportunities for Houston Natural and China Resources
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Houston and China is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Houston Natural Resources and China Resources Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Power and Houston Natural 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 Houston Natural Resources are associated (or correlated) with China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Power has no effect on the direction of Houston Natural i.e., Houston Natural and China Resources go up and down completely randomly.
Pair Corralation between Houston Natural and China Resources
Given the investment horizon of 90 days Houston Natural Resources is expected to generate 3.2 times more return on investment than China Resources. However, Houston Natural is 3.2 times more volatile than China Resources Power. It trades about 0.04 of its potential returns per unit of risk. China Resources Power is currently generating about 0.04 per unit of risk. If you would invest 3.07 in Houston Natural Resources on September 2, 2024 and sell it today you would lose (1.27) from holding Houston Natural Resources or give up 41.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Houston Natural Resources vs. China Resources Power
Performance |
| Timeline |
| Houston Natural Resources |
| China Resources Power |
Houston Natural and China Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Houston Natural and China Resources
The main advantage of trading using opposite Houston Natural and China Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Houston Natural position performs unexpectedly, China Resources 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 China Resources will offset losses from the drop in China Resources' long position.| Houston Natural vs. Ecoloclean Industrs | Houston Natural vs. JPX Global | Houston Natural vs. Majic Wheels Corp | Houston Natural vs. BQE Water |
| China Resources vs. Maxim Power Corp | China Resources vs. Pampa Energia SA | China Resources vs. NRG Energy | China Resources vs. Vistra Energy Corp |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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