Correlation Between Wuxi Chemical and Xiamen Wanli

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

By analyzing existing cross correlation between Wuxi Chemical Equipment and Xiamen Wanli Stone, you can compare the effects of market volatilities on Wuxi Chemical and Xiamen Wanli 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 Wuxi Chemical with a short position of Xiamen Wanli. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wuxi Chemical and Xiamen Wanli.

Diversification Opportunities for Wuxi Chemical and Xiamen Wanli

0.21

Correlation Coefficient

Wuxi Chemical  Xiamen Wanli

Modest diversification

The 3 months correlation between Wuxi and Xiamen is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Wuxi Chemical Equipment and Xiamen Wanli Stone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiamen Wanli Stone and Wuxi 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 Wuxi Chemical Equipment are associated (or correlated) with Xiamen Wanli. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiamen Wanli Stone has no effect on the direction of Wuxi Chemical i.e., Wuxi Chemical and Xiamen Wanli go up and down completely randomly.

Pair Corralation between Wuxi Chemical and Xiamen Wanli

Assuming the 90 days trading horizon Wuxi Chemical Equipment is expected to generate 0.55 times more return on investment than Xiamen Wanli. However, Wuxi Chemical Equipment is 1.82 times less risky than Xiamen Wanli. It trades about 0.06 of its potential returns per unit of risk. Xiamen Wanli Stone is currently generating about -0.08 per unit of risk. If you would invest  3,550  in Wuxi Chemical Equipment on December 24, 2024 and sell it today you would earn a total of  154.00  from holding Wuxi Chemical Equipment or generate 4.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

Wuxi Chemical Equipment  vs.  Xiamen Wanli Stone

Wuxi Chemical Equipment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wuxi Chemical Equipment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Wuxi Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Xiamen Wanli Stone

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xiamen Wanli Stone 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Wuxi Chemical and Xiamen Wanli

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

The idea behind Wuxi Chemical Equipment and Xiamen Wanli Stone 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.