Correlation Between North Chemical and ChengDu Hi

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

By analyzing existing cross correlation between North Chemical Industries and ChengDu Hi Tech Development, you can compare the effects of market volatilities on North Chemical and ChengDu Hi 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 North Chemical with a short position of ChengDu Hi. Check out your portfolio center. Please also check ongoing floating volatility patterns of North Chemical and ChengDu Hi.

Diversification Opportunities for North Chemical and ChengDu Hi

0.41

Correlation Coefficient

North Chemical  ChengDu Hi

Very weak diversification

The 3 months correlation between North and ChengDu is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding North Chemical Industries and ChengDu Hi Tech Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChengDu Hi Tech and North 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 North Chemical Industries are associated (or correlated) with ChengDu Hi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChengDu Hi Tech has no effect on the direction of North Chemical i.e., North Chemical and ChengDu Hi go up and down completely randomly.

Pair Corralation between North Chemical and ChengDu Hi

Assuming the 90 days trading horizon North Chemical is expected to generate 6.3 times less return on investment than ChengDu Hi. But when comparing it to its historical volatility, North Chemical Industries is 1.44 times less risky than ChengDu Hi. It trades about 0.02 of its potential returns per unit of risk. ChengDu Hi Tech Development is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,626  in ChengDu Hi Tech Development on October 6, 2024 and sell it today you would earn a total of  3,516  from holding ChengDu Hi Tech Development or generate 216.24% return on investment over 90 days.

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

North Chemical Industries  vs.  ChengDu Hi Tech Development

North Chemical Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North Chemical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

ChengDu Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ChengDu Hi Tech Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ChengDu Hi is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with North Chemical and ChengDu Hi

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

The idea behind North Chemical Industries and ChengDu Hi Tech Development 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.