Correlation Between Shandong Polymer and Shandong Huifa

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

Diversification Opportunities for Shandong Polymer and Shandong Huifa

0.45

Correlation Coefficient

Shandong Polymer  Shandong Huifa

Very weak diversification

The 3 months correlation between Shandong and Shandong is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Polymer Biochemicals and Shandong Huifa Foodstuff in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Huifa Foodstuff 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 Shandong Huifa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Huifa Foodstuff has no effect on the direction of Shandong Polymer i.e., Shandong Polymer and Shandong Huifa go up and down completely randomly.

Pair Corralation between Shandong Polymer and Shandong Huifa

Assuming the 90 days trading horizon Shandong Polymer is expected to generate 200.88 times less return on investment than Shandong Huifa. But when comparing it to its historical volatility, Shandong Polymer Biochemicals is 1.4 times less risky than Shandong Huifa. It trades about 0.0 of its potential returns per unit of risk. Shandong Huifa Foodstuff is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  705.00  in Shandong Huifa Foodstuff on December 2, 2024 and sell it today you would earn a total of  350.00  from holding Shandong Huifa Foodstuff or generate 49.65% return on investment over 90 days.

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

Shandong Polymer Biochemicals  vs.  Shandong Huifa Foodstuff

Shandong Polymer Bio

Risk-Adjusted Performance

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 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.

Shandong Huifa Foodstuff

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shandong Huifa Foodstuff has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shandong Huifa is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shandong Polymer and Shandong Huifa

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

The idea behind Shandong Polymer Biochemicals and Shandong Huifa Foodstuff 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.