Correlation Between Shenzhen Noposion and Hengyi Petrochemical

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

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

Diversification Opportunities for Shenzhen Noposion and Hengyi Petrochemical

-0.55

Correlation Coefficient

Shenzhen Noposion  Hengyi Petrochemical

Excellent diversification

The 3 months correlation between Shenzhen and Hengyi is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Noposion Agrochemical and Hengyi Petrochemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengyi Petrochemical and Shenzhen Noposion 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 Shenzhen Noposion Agrochemicals are associated (or correlated) with Hengyi Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengyi Petrochemical has no effect on the direction of Shenzhen Noposion i.e., Shenzhen Noposion and Hengyi Petrochemical go up and down completely randomly.

Pair Corralation between Shenzhen Noposion and Hengyi Petrochemical

Assuming the 90 days trading horizon Shenzhen Noposion Agrochemicals is expected to generate 1.4 times more return on investment than Hengyi Petrochemical. However, Shenzhen Noposion is 1.4 times more volatile than Hengyi Petrochemical Co. It trades about 0.07 of its potential returns per unit of risk. Hengyi Petrochemical Co is currently generating about -0.01 per unit of risk. If you would invest  538.00  in Shenzhen Noposion Agrochemicals on October 15, 2024 and sell it today you would earn a total of  509.00  from holding Shenzhen Noposion Agrochemicals or generate 94.61% return on investment over 90 days.

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

Shenzhen Noposion Agrochemical  vs.  Hengyi Petrochemical Co

Shenzhen Noposion

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Noposion Agrochemicals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Noposion sustained solid returns over the last few months and may actually be approaching a breakup point.

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 somewhat strong basic indicators, Hengyi Petrochemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shenzhen Noposion and Hengyi Petrochemical

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

The idea behind Shenzhen Noposion Agrochemicals and Hengyi Petrochemical Co 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.