Correlation Between North Chemical and Tibet Huayu

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

Diversification Opportunities for North Chemical and Tibet Huayu

0.76

Correlation Coefficient

North Chemical  Tibet Huayu

Poor diversification

The 3 months correlation between North and Tibet is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding North Chemical Industries and Tibet Huayu Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tibet Huayu Mining 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 Tibet Huayu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tibet Huayu Mining has no effect on the direction of North Chemical i.e., North Chemical and Tibet Huayu go up and down completely randomly.

Pair Corralation between North Chemical and Tibet Huayu

Assuming the 90 days trading horizon North Chemical is expected to generate 19.05 times less return on investment than Tibet Huayu. But when comparing it to its historical volatility, North Chemical Industries is 1.59 times less risky than Tibet Huayu. It trades about 0.02 of its potential returns per unit of risk. Tibet Huayu Mining is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,311  in Tibet Huayu Mining on December 29, 2024 and sell it today you would earn a total of  716.00  from holding Tibet Huayu Mining or generate 54.61% return on investment over 90 days.

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

North Chemical Industries  vs.  Tibet Huayu Mining

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.

Tibet Huayu Mining

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tibet Huayu Mining are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Tibet Huayu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North Chemical and Tibet Huayu

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

The idea behind North Chemical Industries and Tibet Huayu Mining 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.