Correlation Between North Chemical and Chengdu Kanghua

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

Diversification Opportunities for North Chemical and Chengdu Kanghua

0.82

Correlation Coefficient

North Chemical  Chengdu Kanghua

Very poor diversification

The 3 months correlation between North and Chengdu is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding North Chemical Industries and Chengdu Kanghua Biological in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chengdu Kanghua Biol 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 Kanghua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chengdu Kanghua Biol has no effect on the direction of North Chemical i.e., North Chemical and Chengdu Kanghua go up and down completely randomly.

Pair Corralation between North Chemical and Chengdu Kanghua

Assuming the 90 days trading horizon North Chemical is expected to generate 4.06 times less return on investment than Chengdu Kanghua. In addition to that, North Chemical is 1.1 times more volatile than Chengdu Kanghua Biological. It trades about 0.02 of its total potential returns per unit of risk. Chengdu Kanghua Biological is currently generating about 0.07 per unit of volatility. If you would invest  5,890  in Chengdu Kanghua Biological on December 26, 2024 and sell it today you would earn a total of  471.00  from holding Chengdu Kanghua Biological or generate 8.0% return on investment over 90 days.

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

North Chemical Industries  vs.  Chengdu Kanghua Biological

North Chemical Industries

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in North Chemical Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, North Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chengdu Kanghua Biol

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chengdu Kanghua Biological are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chengdu Kanghua may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with North Chemical and Chengdu Kanghua

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

The idea behind North Chemical Industries and Chengdu Kanghua Biological 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.