Correlation Between Shenzhen Noposion and Liuzhou Chemical

Can any of the company-specific risk be diversified away by investing in both Shenzhen Noposion and Liuzhou 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 Shenzhen Noposion and Liuzhou Chemical 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 Liuzhou Chemical Industry, you can compare the effects of market volatilities on Shenzhen Noposion and Liuzhou 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 Shenzhen Noposion with a short position of Liuzhou Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenzhen Noposion and Liuzhou Chemical.

Diversification Opportunities for Shenzhen Noposion and Liuzhou Chemical

0.69

Correlation Coefficient

Shenzhen Noposion  Liuzhou Chemical

Poor diversification

The 3 months correlation between Shenzhen and Liuzhou is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Shenzhen Noposion Agrochemical and Liuzhou Chemical Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liuzhou Chemical Industry 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 Liuzhou Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liuzhou Chemical Industry has no effect on the direction of Shenzhen Noposion i.e., Shenzhen Noposion and Liuzhou Chemical go up and down completely randomly.

Pair Corralation between Shenzhen Noposion and Liuzhou Chemical

Assuming the 90 days trading horizon Shenzhen Noposion Agrochemicals is expected to generate 1.2 times more return on investment than Liuzhou Chemical. However, Shenzhen Noposion is 1.2 times more volatile than Liuzhou Chemical Industry. It trades about 0.01 of its potential returns per unit of risk. Liuzhou Chemical Industry is currently generating about -0.22 per unit of risk. If you would invest  1,039  in Shenzhen Noposion Agrochemicals on October 10, 2024 and sell it today you would lose (6.00) from holding Shenzhen Noposion Agrochemicals or give up 0.58% of portfolio value over 90 days.

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

Shenzhen Noposion Agrochemical  vs.  Liuzhou Chemical Industry

Shenzhen Noposion

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Noposion Agrochemicals are ranked lower than 8 (%) 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.

Liuzhou Chemical Industry

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Liuzhou Chemical Industry are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liuzhou Chemical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shenzhen Noposion and Liuzhou Chemical

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

The idea behind Shenzhen Noposion Agrochemicals and Liuzhou Chemical Industry 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.