Correlation Between Shandong Polymer and Tibet Huayu

Can any of the company-specific risk be diversified away by investing in both Shandong Polymer 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 Shandong Polymer and Tibet Huayu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shandong Polymer Biochemicals and Tibet Huayu Mining, you can compare the effects of market volatilities on Shandong Polymer 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 Shandong Polymer with a short position of Tibet Huayu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Polymer and Tibet Huayu.

Diversification Opportunities for Shandong Polymer and Tibet Huayu

0.9

Correlation Coefficient

Shandong Polymer  Tibet Huayu

Almost no diversification

The 3 months correlation between Shandong and Tibet is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Polymer Biochemicals 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 Shandong Polymer 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 Shandong Polymer Biochemicals 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 Shandong Polymer i.e., Shandong Polymer and Tibet Huayu go up and down completely randomly.

Pair Corralation between Shandong Polymer and Tibet Huayu

Assuming the 90 days trading horizon Shandong Polymer Biochemicals is expected to generate 0.94 times more return on investment than Tibet Huayu. However, Shandong Polymer Biochemicals is 1.06 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 -0.03 per unit of risk. If you would invest  425.00  in Shandong Polymer Biochemicals on October 6, 2024 and sell it today you would lose (28.00) from holding Shandong Polymer Biochemicals or give up 6.59% of portfolio value over 90 days.

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

Shandong Polymer Biochemicals  vs.  Tibet Huayu Mining

Shandong Polymer Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Polymer Biochemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shandong Polymer 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

0 of 100

Very Weak

Over the last 90 days Tibet Huayu Mining 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.

Pair Trading with Shandong Polymer and Tibet Huayu

The main advantage of trading using opposite Shandong Polymer and Tibet Huayu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shandong Polymer 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 Shandong Polymer Biochemicals 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..