Correlation Between Shenyang Chemical and Xiangyang Automobile

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

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

Diversification Opportunities for Shenyang Chemical and Xiangyang Automobile

0.87

Correlation Coefficient

Shenyang Chemical  Xiangyang Automobile

Very poor diversification

The 3 months correlation between Shenyang and Xiangyang is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Shenyang Chemical Industry and Xiangyang Automobile Bearing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiangyang Automobile and Shenyang 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 Shenyang Chemical Industry are associated (or correlated) with Xiangyang Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiangyang Automobile has no effect on the direction of Shenyang Chemical i.e., Shenyang Chemical and Xiangyang Automobile go up and down completely randomly.

Pair Corralation between Shenyang Chemical and Xiangyang Automobile

Assuming the 90 days trading horizon Shenyang Chemical Industry is expected to generate 0.87 times more return on investment than Xiangyang Automobile. However, Shenyang Chemical Industry is 1.15 times less risky than Xiangyang Automobile. It trades about 0.18 of its potential returns per unit of risk. Xiangyang Automobile Bearing is currently generating about 0.14 per unit of risk. If you would invest  276.00  in Shenyang Chemical Industry on September 24, 2024 and sell it today you would earn a total of  114.00  from holding Shenyang Chemical Industry or generate 41.3% return on investment over 90 days.

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

Shenyang Chemical Industry  vs.  Xiangyang Automobile Bearing

Shenyang Chemical

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Chemical Industry are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenyang Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Xiangyang Automobile

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Shenyang Chemical and Xiangyang Automobile

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

The idea behind Shenyang Chemical Industry and Xiangyang Automobile Bearing 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.