Correlation Between Shenyang Chemical and Guangzhou Boji

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

Diversification Opportunities for Shenyang Chemical and Guangzhou Boji

0.31

Correlation Coefficient

Shenyang Chemical  Guangzhou Boji

Weak diversification

The 3 months correlation between Shenyang and Guangzhou is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Shenyang Chemical Industry and Guangzhou Boji Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Boji Medical 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 Guangzhou Boji. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Boji Medical has no effect on the direction of Shenyang Chemical i.e., Shenyang Chemical and Guangzhou Boji go up and down completely randomly.

Pair Corralation between Shenyang Chemical and Guangzhou Boji

Assuming the 90 days trading horizon Shenyang Chemical is expected to generate 1.08 times less return on investment than Guangzhou Boji. But when comparing it to its historical volatility, Shenyang Chemical Industry is 1.47 times less risky than Guangzhou Boji. It trades about 0.09 of its potential returns per unit of risk. Guangzhou Boji Medical is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  895.00  in Guangzhou Boji Medical on December 28, 2024 and sell it today you would earn a total of  86.00  from holding Guangzhou Boji Medical or generate 9.61% return on investment over 90 days.

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

Shenyang Chemical Industry  vs.  Guangzhou Boji Medical

Shenyang Chemical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Chemical Industry are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenyang Chemical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Guangzhou Boji Medical

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Boji Medical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Boji sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenyang Chemical and Guangzhou Boji

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

The idea behind Shenyang Chemical Industry and Guangzhou Boji Medical 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.