Correlation Between North Chemical and Guangdong Cellwise

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

Diversification Opportunities for North Chemical and Guangdong Cellwise

0.47

Correlation Coefficient

North Chemical  Guangdong Cellwise

Very weak diversification

The 3 months correlation between North and Guangdong is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding North Chemical Industries and Guangdong Cellwise Microelectr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Cellwise 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 Guangdong Cellwise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Cellwise has no effect on the direction of North Chemical i.e., North Chemical and Guangdong Cellwise go up and down completely randomly.

Pair Corralation between North Chemical and Guangdong Cellwise

Assuming the 90 days trading horizon North Chemical Industries is expected to under-perform the Guangdong Cellwise. But the stock apears to be less risky and, when comparing its historical volatility, North Chemical Industries is 1.08 times less risky than Guangdong Cellwise. The stock trades about -0.23 of its potential returns per unit of risk. The Guangdong Cellwise Microelectronics is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  4,830  in Guangdong Cellwise Microelectronics on October 5, 2024 and sell it today you would lose (169.00) from holding Guangdong Cellwise Microelectronics or give up 3.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

North Chemical Industries  vs.  Guangdong Cellwise Microelectr

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 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.

Guangdong Cellwise

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Cellwise Microelectronics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangdong Cellwise 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 Guangdong Cellwise

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

The idea behind North Chemical Industries and Guangdong Cellwise Microelectronics 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.