Correlation Between Changchun High and Hengyi Petrochemical

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

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

Diversification Opportunities for Changchun High and Hengyi Petrochemical

0.85

Correlation Coefficient

Changchun High  Hengyi Petrochemical

Very poor diversification

The 3 months correlation between Changchun and Hengyi is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Changchun High New and Hengyi Petrochemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengyi Petrochemical and Changchun High 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 Changchun High New are associated (or correlated) with Hengyi Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengyi Petrochemical has no effect on the direction of Changchun High i.e., Changchun High and Hengyi Petrochemical go up and down completely randomly.

Pair Corralation between Changchun High and Hengyi Petrochemical

Assuming the 90 days trading horizon Changchun High New is expected to under-perform the Hengyi Petrochemical. In addition to that, Changchun High is 1.26 times more volatile than Hengyi Petrochemical Co. It trades about -0.19 of its total potential returns per unit of risk. Hengyi Petrochemical Co is currently generating about -0.06 per unit of volatility. If you would invest  611.00  in Hengyi Petrochemical Co on September 27, 2024 and sell it today you would lose (9.00) from holding Hengyi Petrochemical Co or give up 1.47% of portfolio value over 90 days.

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

Changchun High New  vs.  Hengyi Petrochemical Co

Changchun High New

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Changchun High New are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Changchun High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hengyi Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hengyi Petrochemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hengyi Petrochemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Changchun High and Hengyi Petrochemical

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

The idea behind Changchun High New and Hengyi 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.