Correlation Between Beijing HuaYuanYiTong and Wuxi Chemical

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

By analyzing existing cross correlation between Beijing HuaYuanYiTong Thermal and Wuxi Chemical Equipment, you can compare the effects of market volatilities on Beijing HuaYuanYiTong and Wuxi 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 Beijing HuaYuanYiTong with a short position of Wuxi Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Beijing HuaYuanYiTong and Wuxi Chemical.

Diversification Opportunities for Beijing HuaYuanYiTong and Wuxi Chemical

0.24

Correlation Coefficient

Beijing HuaYuanYiTong  Wuxi Chemical

Modest diversification

The 3 months correlation between Beijing and Wuxi is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Beijing HuaYuanYiTong Thermal and Wuxi Chemical Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wuxi Chemical Equipment and Beijing HuaYuanYiTong 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 Beijing HuaYuanYiTong Thermal are associated (or correlated) with Wuxi Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wuxi Chemical Equipment has no effect on the direction of Beijing HuaYuanYiTong i.e., Beijing HuaYuanYiTong and Wuxi Chemical go up and down completely randomly.

Pair Corralation between Beijing HuaYuanYiTong and Wuxi Chemical

Assuming the 90 days trading horizon Beijing HuaYuanYiTong Thermal is expected to under-perform the Wuxi Chemical. In addition to that, Beijing HuaYuanYiTong is 1.06 times more volatile than Wuxi Chemical Equipment. It trades about -0.15 of its total potential returns per unit of risk. Wuxi Chemical Equipment is currently generating about 0.03 per unit of volatility. If you would invest  3,480  in Wuxi Chemical Equipment on October 26, 2024 and sell it today you would earn a total of  23.00  from holding Wuxi Chemical Equipment or generate 0.66% return on investment over 90 days.

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

Beijing HuaYuanYiTong Thermal  vs.  Wuxi Chemical Equipment

Beijing HuaYuanYiTong

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beijing HuaYuanYiTong Thermal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Wuxi Chemical Equipment

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wuxi Chemical Equipment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Wuxi 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 Beijing HuaYuanYiTong and Wuxi Chemical

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

The idea behind Beijing HuaYuanYiTong Thermal and Wuxi Chemical Equipment 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.