Correlation Between North Huajin and Western Securities

Can any of the company-specific risk be diversified away by investing in both North Huajin and Western Securities 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 North Huajin and Western Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between North Huajin Chemical and Western Securities Co, you can compare the effects of market volatilities on North Huajin and Western Securities 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 North Huajin with a short position of Western Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of North Huajin and Western Securities.

Diversification Opportunities for North Huajin and Western Securities

0.87

Correlation Coefficient

North Huajin  Western Securities

Very poor diversification

The 3 months correlation between North and Western is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding North Huajin Chemical and Western Securities Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Securities and North Huajin 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 North Huajin Chemical are associated (or correlated) with Western Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Securities has no effect on the direction of North Huajin i.e., North Huajin and Western Securities go up and down completely randomly.

Pair Corralation between North Huajin and Western Securities

Assuming the 90 days trading horizon North Huajin Chemical is expected to under-perform the Western Securities. In addition to that, North Huajin is 1.17 times more volatile than Western Securities Co. It trades about -0.06 of its total potential returns per unit of risk. Western Securities Co is currently generating about -0.04 per unit of volatility. If you would invest  897.00  in Western Securities Co on September 20, 2024 and sell it today you would lose (29.00) from holding Western Securities Co or give up 3.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

North Huajin Chemical  vs.  Western Securities Co

North Huajin Chemical

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in North Huajin Chemical are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, North Huajin sustained solid returns over the last few months and may actually be approaching a breakup point.

Western Securities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Securities Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Securities sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North Huajin and Western Securities

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

The idea behind North Huajin Chemical and Western Securities 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.