Correlation Between Ningbo Tech and Wuxi Chemical

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

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

Diversification Opportunities for Ningbo Tech and Wuxi Chemical

0.73

Correlation Coefficient

Ningbo Tech  Wuxi Chemical

Poor diversification

The 3 months correlation between Ningbo and Wuxi is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo Tech Bank Co and Wuxi Chemical Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wuxi Chemical Equipment and Ningbo Tech 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 Ningbo Tech Bank Co are associated (or correlated) with Wuxi Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wuxi Chemical Equipment has no effect on the direction of Ningbo Tech i.e., Ningbo Tech and Wuxi Chemical go up and down completely randomly.

Pair Corralation between Ningbo Tech and Wuxi Chemical

Assuming the 90 days trading horizon Ningbo Tech Bank Co is expected to under-perform the Wuxi Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Ningbo Tech Bank Co is 1.07 times less risky than Wuxi Chemical. The stock trades about -0.34 of its potential returns per unit of risk. The Wuxi Chemical Equipment is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  3,603  in Wuxi Chemical Equipment on October 10, 2024 and sell it today you would lose (265.00) from holding Wuxi Chemical Equipment or give up 7.35% of portfolio value over 90 days.

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

Ningbo Tech Bank Co  vs.  Wuxi Chemical Equipment

Ningbo Tech Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Tech Bank Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Tech sustained solid returns over the last few months and may actually be approaching a breakup point.

Wuxi Chemical Equipment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wuxi Chemical Equipment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuxi Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ningbo Tech and Wuxi Chemical

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

The idea behind Ningbo Tech Bank Co and Wuxi Chemical Equipment 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.