Correlation Between Western Securities and North Huajin

Can any of the company-specific risk be diversified away by investing in both Western Securities and North Huajin 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 Western Securities and North Huajin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Securities Co and North Huajin Chemical, you can compare the effects of market volatilities on Western Securities and North Huajin 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 Western Securities with a short position of North Huajin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Securities and North Huajin.

Diversification Opportunities for Western Securities and North Huajin

0.95

Correlation Coefficient

Western Securities  North Huajin

Almost no diversification

The 3 months correlation between Western and North is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Western Securities Co and North Huajin Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Huajin Chemical and Western Securities 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 Western Securities Co are associated (or correlated) with North Huajin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Huajin Chemical has no effect on the direction of Western Securities i.e., Western Securities and North Huajin go up and down completely randomly.

Pair Corralation between Western Securities and North Huajin

Assuming the 90 days trading horizon Western Securities Co is expected to generate 1.24 times more return on investment than North Huajin. However, Western Securities is 1.24 times more volatile than North Huajin Chemical. It trades about 0.04 of its potential returns per unit of risk. North Huajin Chemical is currently generating about -0.02 per unit of risk. If you would invest  799.00  in Western Securities Co on December 10, 2024 and sell it today you would earn a total of  10.00  from holding Western Securities Co or generate 1.25% return on investment over 90 days.

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

Western Securities Co  vs.  North Huajin Chemical

Western Securities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Securities Co 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.

North Huajin Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days North Huajin Chemical 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 Western Securities and North Huajin

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

The idea behind Western Securities Co and North Huajin Chemical 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 Global Correlations module to find global opportunities by holding instruments from different markets.