Correlation Between Bohai Leasing and Shenyang Chemical

Can any of the company-specific risk be diversified away by investing in both Bohai Leasing and Shenyang Chemical 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 Bohai Leasing and Shenyang Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Bohai Leasing and Shenyang Chemical

0.67

Correlation Coefficient

Bohai Leasing  Shenyang Chemical

Poor diversification

The 3 months correlation between Bohai and Shenyang is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Bohai Leasing Co and Shenyang Chemical Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenyang Chemical and Bohai Leasing 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 Bohai Leasing Co are associated (or correlated) with Shenyang Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenyang Chemical has no effect on the direction of Bohai Leasing i.e., Bohai Leasing and Shenyang Chemical go up and down completely randomly.

Pair Corralation between Bohai Leasing and Shenyang Chemical

Assuming the 90 days trading horizon Bohai Leasing Co is expected to under-perform the Shenyang Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Bohai Leasing Co is 2.11 times less risky than Shenyang Chemical. The stock trades about -0.49 of its potential returns per unit of risk. The Shenyang Chemical Industry is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  385.00  in Shenyang Chemical Industry on October 11, 2024 and sell it today you would lose (60.00) from holding Shenyang Chemical Industry or give up 15.58% of portfolio value over 90 days.

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

Bohai Leasing Co  vs.  Shenyang Chemical Industry

Bohai Leasing

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bohai Leasing Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bohai Leasing sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenyang Chemical

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Chemical Industry are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenyang Chemical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Bohai Leasing and Shenyang Chemical

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

The idea behind Bohai Leasing Co and Shenyang Chemical Industry 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.