Correlation Between Guangdong Tianhe and Aba Chemicals

Can any of the company-specific risk be diversified away by investing in both Guangdong Tianhe and Aba Chemicals 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 Guangdong Tianhe and Aba Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangdong Tianhe Agricultural and Aba Chemicals Corp, you can compare the effects of market volatilities on Guangdong Tianhe and Aba Chemicals 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 Guangdong Tianhe with a short position of Aba Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Tianhe and Aba Chemicals.

Diversification Opportunities for Guangdong Tianhe and Aba Chemicals

0.5

Correlation Coefficient

Guangdong Tianhe  Aba Chemicals

Very weak diversification

The 3 months correlation between Guangdong and Aba is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Tianhe Agricultural and Aba Chemicals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aba Chemicals Corp and Guangdong Tianhe 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 Guangdong Tianhe Agricultural are associated (or correlated) with Aba Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aba Chemicals Corp has no effect on the direction of Guangdong Tianhe i.e., Guangdong Tianhe and Aba Chemicals go up and down completely randomly.

Pair Corralation between Guangdong Tianhe and Aba Chemicals

Assuming the 90 days trading horizon Guangdong Tianhe Agricultural is expected to under-perform the Aba Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Tianhe Agricultural is 1.32 times less risky than Aba Chemicals. The stock trades about -0.03 of its potential returns per unit of risk. The Aba Chemicals Corp is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,169  in Aba Chemicals Corp on October 5, 2024 and sell it today you would lose (504.00) from holding Aba Chemicals Corp or give up 43.11% of portfolio value over 90 days.

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

Guangdong Tianhe Agricultural  vs.  Aba Chemicals Corp

Guangdong Tianhe Agr

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aba Chemicals Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aba Chemicals Corp 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 Guangdong Tianhe and Aba Chemicals

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

The idea behind Guangdong Tianhe Agricultural and Aba Chemicals Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.