Correlation Between North Chemical and Maoming Petro

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

Diversification Opportunities for North Chemical and Maoming Petro

0.67

Correlation Coefficient

North Chemical  Maoming Petro

Poor diversification

The 3 months correlation between North and Maoming is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding North Chemical Industries and Maoming Petro Chemical Shihua in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maoming Petro Chemical 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 Maoming Petro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maoming Petro Chemical has no effect on the direction of North Chemical i.e., North Chemical and Maoming Petro go up and down completely randomly.

Pair Corralation between North Chemical and Maoming Petro

Assuming the 90 days trading horizon North Chemical Industries is expected to under-perform the Maoming Petro. But the stock apears to be less risky and, when comparing its historical volatility, North Chemical Industries is 1.09 times less risky than Maoming Petro. The stock trades about -0.21 of its potential returns per unit of risk. The Maoming Petro Chemical Shihua is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  384.00  in Maoming Petro Chemical Shihua on October 22, 2024 and sell it today you would lose (13.00) from holding Maoming Petro Chemical Shihua or give up 3.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

North Chemical Industries  vs.  Maoming Petro Chemical Shihua

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.

Maoming Petro Chemical

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with North Chemical and Maoming Petro

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

The idea behind North Chemical Industries and Maoming Petro Chemical Shihua 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.