Correlation Between Shenyang Chemical and Xinxiang Chemical

Can any of the company-specific risk be diversified away by investing in both Shenyang Chemical and Xinxiang 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 Shenyang Chemical and Xinxiang Chemical 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 Xinxiang Chemical Fiber, you can compare the effects of market volatilities on Shenyang Chemical and Xinxiang 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 Shenyang Chemical with a short position of Xinxiang Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenyang Chemical and Xinxiang Chemical.

Diversification Opportunities for Shenyang Chemical and Xinxiang Chemical

0.87

Correlation Coefficient

Shenyang Chemical  Xinxiang Chemical

Very poor diversification

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

Pair Corralation between Shenyang Chemical and Xinxiang Chemical

Assuming the 90 days trading horizon Shenyang Chemical Industry is expected to under-perform the Xinxiang Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Shenyang Chemical Industry is 1.19 times less risky than Xinxiang Chemical. The stock trades about -0.01 of its potential returns per unit of risk. The Xinxiang Chemical Fiber is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  396.00  in Xinxiang Chemical Fiber on October 8, 2024 and sell it today you would lose (16.00) from holding Xinxiang Chemical Fiber or give up 4.04% of portfolio value over 90 days.

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

Shenyang Chemical Industry  vs.  Xinxiang Chemical Fiber

Shenyang Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Xinxiang Chemical Fiber

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shenyang Chemical and Xinxiang Chemical

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

The idea behind Shenyang Chemical Industry and Xinxiang Chemical Fiber 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.