Correlation Between Shantou Wanshun and Hubei Xingfa

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

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

Diversification Opportunities for Shantou Wanshun and Hubei Xingfa

0.79

Correlation Coefficient

Shantou Wanshun  Hubei Xingfa

Poor diversification

The 3 months correlation between Shantou and Hubei is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Shantou Wanshun Package and Hubei Xingfa Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Xingfa Chemicals and Shantou Wanshun 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 Shantou Wanshun Package are associated (or correlated) with Hubei Xingfa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Xingfa Chemicals has no effect on the direction of Shantou Wanshun i.e., Shantou Wanshun and Hubei Xingfa go up and down completely randomly.

Pair Corralation between Shantou Wanshun and Hubei Xingfa

Assuming the 90 days trading horizon Shantou Wanshun Package is expected to under-perform the Hubei Xingfa. In addition to that, Shantou Wanshun is 1.25 times more volatile than Hubei Xingfa Chemicals. It trades about -0.25 of its total potential returns per unit of risk. Hubei Xingfa Chemicals is currently generating about -0.15 per unit of volatility. If you would invest  2,425  in Hubei Xingfa Chemicals on October 7, 2024 and sell it today you would lose (287.00) from holding Hubei Xingfa Chemicals or give up 11.84% of portfolio value over 90 days.

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

Shantou Wanshun Package  vs.  Hubei Xingfa Chemicals

Shantou Wanshun Package

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shantou Wanshun Package 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.

Hubei Xingfa Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hubei Xingfa Chemicals 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 Shantou Wanshun and Hubei Xingfa

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

The idea behind Shantou Wanshun Package and Hubei Xingfa Chemicals 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.