Correlation Between Xinxiang Chemical and Wanhua Chemical

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

By analyzing existing cross correlation between Xinxiang Chemical Fiber and Wanhua Chemical Group, you can compare the effects of market volatilities on Xinxiang Chemical and Wanhua 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 Xinxiang Chemical with a short position of Wanhua Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinxiang Chemical and Wanhua Chemical.

Diversification Opportunities for Xinxiang Chemical and Wanhua Chemical

-0.46

Correlation Coefficient

Xinxiang Chemical  Wanhua Chemical

Very good diversification

The 3 months correlation between Xinxiang and Wanhua is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Xinxiang Chemical Fiber and Wanhua Chemical Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wanhua Chemical Group and Xinxiang 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 Xinxiang Chemical Fiber are associated (or correlated) with Wanhua Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wanhua Chemical Group has no effect on the direction of Xinxiang Chemical i.e., Xinxiang Chemical and Wanhua Chemical go up and down completely randomly.

Pair Corralation between Xinxiang Chemical and Wanhua Chemical

Assuming the 90 days trading horizon Xinxiang Chemical Fiber is expected to generate 2.09 times more return on investment than Wanhua Chemical. However, Xinxiang Chemical is 2.09 times more volatile than Wanhua Chemical Group. It trades about 0.02 of its potential returns per unit of risk. Wanhua Chemical Group is currently generating about -0.23 per unit of risk. If you would invest  396.00  in Xinxiang Chemical Fiber on October 5, 2024 and sell it today you would earn a total of  3.00  from holding Xinxiang Chemical Fiber or generate 0.76% return on investment over 90 days.

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

Xinxiang Chemical Fiber  vs.  Wanhua Chemical Group

Xinxiang Chemical Fiber

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xinxiang Chemical Fiber are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Wanhua Chemical Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wanhua Chemical Group 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Xinxiang Chemical and Wanhua Chemical

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

The idea behind Xinxiang Chemical Fiber and Wanhua Chemical Group 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.