Correlation Between North Huajin and Fushun Special

Can any of the company-specific risk be diversified away by investing in both North Huajin and Fushun Special 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 Fushun Special 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 Fushun Special Steel, you can compare the effects of market volatilities on North Huajin and Fushun Special 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 Fushun Special. Check out your portfolio center. Please also check ongoing floating volatility patterns of North Huajin and Fushun Special.

Diversification Opportunities for North Huajin and Fushun Special

0.92

Correlation Coefficient

North Huajin  Fushun Special

Almost no diversification

The 3 months correlation between North and Fushun is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding North Huajin Chemical and Fushun Special Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fushun Special Steel 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 Fushun Special. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fushun Special Steel has no effect on the direction of North Huajin i.e., North Huajin and Fushun Special go up and down completely randomly.

Pair Corralation between North Huajin and Fushun Special

Assuming the 90 days trading horizon North Huajin Chemical is expected to generate 1.14 times more return on investment than Fushun Special. However, North Huajin is 1.14 times more volatile than Fushun Special Steel. It trades about -0.09 of its potential returns per unit of risk. Fushun Special Steel is currently generating about -0.15 per unit of risk. If you would invest  524.00  in North Huajin Chemical on December 5, 2024 and sell it today you would lose (55.00) from holding North Huajin Chemical or give up 10.5% of portfolio value over 90 days.

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

North Huajin Chemical  vs.  Fushun Special Steel

North Huajin Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days North Huajin Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Fushun Special Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fushun Special Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with North Huajin and Fushun Special

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

The idea behind North Huajin Chemical and Fushun Special Steel 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.