Correlation Between Aba Chemicals and Hongrun Construction

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

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

Diversification Opportunities for Aba Chemicals and Hongrun Construction

-0.53

Correlation Coefficient

Aba Chemicals  Hongrun Construction

Excellent diversification

The 3 months correlation between Aba and Hongrun is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Aba Chemicals Corp and Hongrun Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hongrun Construction and Aba 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 Aba Chemicals Corp are associated (or correlated) with Hongrun Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hongrun Construction has no effect on the direction of Aba Chemicals i.e., Aba Chemicals and Hongrun Construction go up and down completely randomly.

Pair Corralation between Aba Chemicals and Hongrun Construction

Assuming the 90 days trading horizon Aba Chemicals Corp is expected to under-perform the Hongrun Construction. In addition to that, Aba Chemicals is 1.07 times more volatile than Hongrun Construction Group. It trades about -0.03 of its total potential returns per unit of risk. Hongrun Construction Group is currently generating about 0.09 per unit of volatility. If you would invest  450.00  in Hongrun Construction Group on December 23, 2024 and sell it today you would earn a total of  50.00  from holding Hongrun Construction Group or generate 11.11% return on investment over 90 days.

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

Aba Chemicals Corp  vs.  Hongrun Construction Group

Aba Chemicals Corp

Risk-Adjusted Performance

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 somewhat strong basic indicators, Aba Chemicals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hongrun Construction

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hongrun Construction Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hongrun Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aba Chemicals and Hongrun Construction

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

The idea behind Aba Chemicals Corp and Hongrun Construction Group 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.