Correlation Between Jilin Chemical and Hengli Petrochemical

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

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

Diversification Opportunities for Jilin Chemical and Hengli Petrochemical

0.68

Correlation Coefficient

Jilin Chemical  Hengli Petrochemical

Poor diversification

The 3 months correlation between Jilin and Hengli is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Jilin Chemical Fibre and Hengli Petrochemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengli Petrochemical and Jilin Chemical 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 Jilin Chemical Fibre are associated (or correlated) with Hengli Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengli Petrochemical has no effect on the direction of Jilin Chemical i.e., Jilin Chemical and Hengli Petrochemical go up and down completely randomly.

Pair Corralation between Jilin Chemical and Hengli Petrochemical

Assuming the 90 days trading horizon Jilin Chemical Fibre is expected to generate 1.58 times more return on investment than Hengli Petrochemical. However, Jilin Chemical is 1.58 times more volatile than Hengli Petrochemical Co. It trades about 0.01 of its potential returns per unit of risk. Hengli Petrochemical Co is currently generating about 0.01 per unit of risk. If you would invest  443.00  in Jilin Chemical Fibre on September 20, 2024 and sell it today you would lose (35.00) from holding Jilin Chemical Fibre or give up 7.9% of portfolio value over 90 days.

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

Jilin Chemical Fibre  vs.  Hengli Petrochemical Co

Jilin Chemical Fibre

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jilin Chemical Fibre are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jilin Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Hengli Petrochemical

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Jilin Chemical and Hengli Petrochemical

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

The idea behind Jilin Chemical Fibre and Hengli Petrochemical 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.