Correlation Between Wuxi Chemical and Shanghai Phichem

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

Diversification Opportunities for Wuxi Chemical and Shanghai Phichem

0.59

Correlation Coefficient

Wuxi Chemical  Shanghai Phichem

Very weak diversification

The 3 months correlation between Wuxi and Shanghai is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Wuxi Chemical Equipment and Shanghai Phichem Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Phichem Material 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 Shanghai Phichem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Phichem Material has no effect on the direction of Wuxi Chemical i.e., Wuxi Chemical and Shanghai Phichem go up and down completely randomly.

Pair Corralation between Wuxi Chemical and Shanghai Phichem

Assuming the 90 days trading horizon Wuxi Chemical Equipment is expected to generate 0.79 times more return on investment than Shanghai Phichem. However, Wuxi Chemical Equipment is 1.26 times less risky than Shanghai Phichem. It trades about 0.03 of its potential returns per unit of risk. Shanghai Phichem Material is currently generating about -0.01 per unit of risk. If you would invest  3,480  in Wuxi Chemical Equipment on October 26, 2024 and sell it today you would earn a total of  23.00  from holding Wuxi Chemical Equipment or generate 0.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Wuxi Chemical Equipment  vs.  Shanghai Phichem Material

Wuxi Chemical Equipment

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wuxi Chemical Equipment are ranked lower than 3 (%) 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.

Shanghai Phichem Material

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Phichem Material are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Phichem may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Wuxi Chemical and Shanghai Phichem

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

The idea behind Wuxi Chemical Equipment and Shanghai Phichem Material 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.