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

0.87

Correlation Coefficient

Western Securities  North Huajin

Very poor diversification

The 3 months correlation between Western and North is 0.87. 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 0.85 times more return on investment than North Huajin. However, Western Securities Co is 1.17 times less risky than North Huajin. It trades about -0.04 of its potential returns per unit of risk. North Huajin Chemical is currently generating about -0.06 per unit of risk. If you would invest  897.00  in Western Securities Co on September 20, 2024 and sell it today you would lose (29.00) from holding Western Securities Co or give up 3.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Western Securities Co  vs.  North Huajin Chemical

Western Securities

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Securities Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Securities sustained solid returns over the last few months and may actually be approaching a breakup point.

North Huajin Chemical

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in North Huajin Chemical are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, North Huajin sustained solid returns over the last few months and may actually be approaching a breakup point.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.