Correlation Between Nanhua Bio and Xiamen Wanli

Can any of the company-specific risk be diversified away by investing in both Nanhua Bio and Xiamen Wanli 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 Nanhua Bio and Xiamen Wanli into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nanhua Bio Medicine and Xiamen Wanli Stone, you can compare the effects of market volatilities on Nanhua Bio and Xiamen Wanli 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 Nanhua Bio with a short position of Xiamen Wanli. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nanhua Bio and Xiamen Wanli.

Diversification Opportunities for Nanhua Bio and Xiamen Wanli

-0.46

Correlation Coefficient

Nanhua Bio  Xiamen Wanli

Very good diversification

The 3 months correlation between Nanhua and Xiamen is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Nanhua Bio Medicine and Xiamen Wanli Stone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Wanli Stone and Nanhua Bio 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 Nanhua Bio Medicine are associated (or correlated) with Xiamen Wanli. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Wanli Stone has no effect on the direction of Nanhua Bio i.e., Nanhua Bio and Xiamen Wanli go up and down completely randomly.

Pair Corralation between Nanhua Bio and Xiamen Wanli

Assuming the 90 days trading horizon Nanhua Bio Medicine is expected to generate 1.01 times more return on investment than Xiamen Wanli. However, Nanhua Bio is 1.01 times more volatile than Xiamen Wanli Stone. It trades about 0.11 of its potential returns per unit of risk. Xiamen Wanli Stone is currently generating about -0.1 per unit of risk. If you would invest  832.00  in Nanhua Bio Medicine on December 26, 2024 and sell it today you would earn a total of  137.00  from holding Nanhua Bio Medicine or generate 16.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.28%
Values	Daily Returns

Nanhua Bio Medicine  vs.  Xiamen Wanli Stone

Nanhua Bio Medicine

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nanhua Bio Medicine are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanhua Bio sustained solid returns over the last few months and may actually be approaching a breakup point.

Xiamen Wanli Stone

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xiamen Wanli Stone 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 Nanhua Bio and Xiamen Wanli

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

The idea behind Nanhua Bio Medicine and Xiamen Wanli Stone 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.