Correlation Between Hannong Chemicals and RPBio

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

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

Diversification Opportunities for Hannong Chemicals and RPBio

0.46

Correlation Coefficient

Hannong Chemicals  RPBio

Very weak diversification

The 3 months correlation between Hannong and RPBio is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Hannong Chemicals and RPBio Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RPBio Inc and Hannong Chemicals 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 Hannong Chemicals are associated (or correlated) with RPBio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RPBio Inc has no effect on the direction of Hannong Chemicals i.e., Hannong Chemicals and RPBio go up and down completely randomly.

Pair Corralation between Hannong Chemicals and RPBio

Assuming the 90 days trading horizon Hannong Chemicals is expected to generate 1.49 times more return on investment than RPBio. However, Hannong Chemicals is 1.49 times more volatile than RPBio Inc. It trades about 0.11 of its potential returns per unit of risk. RPBio Inc is currently generating about 0.1 per unit of risk. If you would invest  1,319,000  in Hannong Chemicals on December 26, 2024 and sell it today you would earn a total of  327,000  from holding Hannong Chemicals or generate 24.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.28%
Values	Daily Returns

Hannong Chemicals  vs.  RPBio Inc

Hannong Chemicals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hannong Chemicals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hannong Chemicals sustained solid returns over the last few months and may actually be approaching a breakup point.

RPBio Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RPBio Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, RPBio sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hannong Chemicals and RPBio

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

The idea behind Hannong Chemicals and RPBio Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.