Correlation Between Zhongshan Broad and Nanning Chemical

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

By analyzing existing cross correlation between Zhongshan Broad Ocean Motor and Nanning Chemical Industry, you can compare the effects of market volatilities on Zhongshan Broad and Nanning Chemical 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 Zhongshan Broad with a short position of Nanning Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongshan Broad and Nanning Chemical.

Diversification Opportunities for Zhongshan Broad and Nanning Chemical

0.62

Correlation Coefficient

Zhongshan Broad  Nanning Chemical

Poor diversification

The 3 months correlation between Zhongshan and Nanning is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Zhongshan Broad Ocean Motor and Nanning Chemical Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanning Chemical Industry and Zhongshan Broad 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 Zhongshan Broad Ocean Motor are associated (or correlated) with Nanning Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanning Chemical Industry has no effect on the direction of Zhongshan Broad i.e., Zhongshan Broad and Nanning Chemical go up and down completely randomly.

Pair Corralation between Zhongshan Broad and Nanning Chemical

Assuming the 90 days trading horizon Zhongshan Broad Ocean Motor is expected to generate 1.51 times more return on investment than Nanning Chemical. However, Zhongshan Broad is 1.51 times more volatile than Nanning Chemical Industry. It trades about -0.03 of its potential returns per unit of risk. Nanning Chemical Industry is currently generating about -0.24 per unit of risk. If you would invest  586.00  in Zhongshan Broad Ocean Motor on October 10, 2024 and sell it today you would lose (14.00) from holding Zhongshan Broad Ocean Motor or give up 2.39% of portfolio value over 90 days.

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

Zhongshan Broad Ocean Motor  vs.  Nanning Chemical Industry

Zhongshan Broad Ocean

Risk-Adjusted Performance

4 of 100

Insignificant

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

Nanning Chemical Industry

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nanning Chemical Industry are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nanning Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Zhongshan Broad and Nanning Chemical

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

The idea behind Zhongshan Broad Ocean Motor and Nanning Chemical Industry 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.