Correlation Between Hengyi Petrochemical and Baoshan Iron

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

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

Diversification Opportunities for Hengyi Petrochemical and Baoshan Iron

0.57

Correlation Coefficient

Hengyi Petrochemical  Baoshan Iron

Very weak diversification

The 3 months correlation between Hengyi and Baoshan is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Hengyi Petrochemical Co and Baoshan Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baoshan Iron Steel and Hengyi Petrochemical 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 Hengyi Petrochemical Co are associated (or correlated) with Baoshan Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baoshan Iron Steel has no effect on the direction of Hengyi Petrochemical i.e., Hengyi Petrochemical and Baoshan Iron go up and down completely randomly.

Pair Corralation between Hengyi Petrochemical and Baoshan Iron

Assuming the 90 days trading horizon Hengyi Petrochemical Co is expected to under-perform the Baoshan Iron. But the stock apears to be less risky and, when comparing its historical volatility, Hengyi Petrochemical Co is 1.32 times less risky than Baoshan Iron. The stock trades about -0.13 of its potential returns per unit of risk. The Baoshan Iron Steel is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  694.00  in Baoshan Iron Steel on September 28, 2024 and sell it today you would earn a total of  5.00  from holding Baoshan Iron Steel or generate 0.72% return on investment over 90 days.

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

Hengyi Petrochemical Co  vs.  Baoshan Iron Steel

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Baoshan Iron Steel

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Hengyi Petrochemical and Baoshan Iron

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

The idea behind Hengyi Petrochemical Co and Baoshan Iron Steel 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.