Correlation Between Guizhou Chanhen and Sichuan Teway

Can any of the company-specific risk be diversified away by investing in both Guizhou Chanhen and Sichuan Teway 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 Guizhou Chanhen and Sichuan Teway into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guizhou Chanhen Chemical and Sichuan Teway Food, you can compare the effects of market volatilities on Guizhou Chanhen and Sichuan Teway 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 Guizhou Chanhen with a short position of Sichuan Teway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guizhou Chanhen and Sichuan Teway.

Diversification Opportunities for Guizhou Chanhen and Sichuan Teway

0.23

Correlation Coefficient

Guizhou Chanhen  Sichuan Teway

Modest diversification

The 3 months correlation between Guizhou and Sichuan is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Guizhou Chanhen Chemical and Sichuan Teway Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Teway Food and Guizhou Chanhen 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 Guizhou Chanhen Chemical are associated (or correlated) with Sichuan Teway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Teway Food has no effect on the direction of Guizhou Chanhen i.e., Guizhou Chanhen and Sichuan Teway go up and down completely randomly.

Pair Corralation between Guizhou Chanhen and Sichuan Teway

Assuming the 90 days trading horizon Guizhou Chanhen Chemical is expected to generate 1.1 times more return on investment than Sichuan Teway. However, Guizhou Chanhen is 1.1 times more volatile than Sichuan Teway Food. It trades about 0.05 of its potential returns per unit of risk. Sichuan Teway Food is currently generating about 0.01 per unit of risk. If you would invest  1,760  in Guizhou Chanhen Chemical on October 9, 2024 and sell it today you would earn a total of  472.00  from holding Guizhou Chanhen Chemical or generate 26.82% return on investment over 90 days.

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

Guizhou Chanhen Chemical  vs.  Sichuan Teway Food

Guizhou Chanhen Chemical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guizhou Chanhen Chemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guizhou Chanhen may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sichuan Teway Food

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Teway Food are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sichuan Teway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guizhou Chanhen and Sichuan Teway

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

The idea behind Guizhou Chanhen Chemical and Sichuan Teway Food 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.