Correlation Between Aba Chemicals and Suzhou Dongshan

Can any of the company-specific risk be diversified away by investing in both Aba Chemicals and Suzhou Dongshan 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 Suzhou Dongshan 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 Suzhou Dongshan Precision, you can compare the effects of market volatilities on Aba Chemicals and Suzhou Dongshan 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 Suzhou Dongshan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aba Chemicals and Suzhou Dongshan.

Diversification Opportunities for Aba Chemicals and Suzhou Dongshan

-0.36

Correlation Coefficient

Aba Chemicals  Suzhou Dongshan

Very good diversification

The 3 months correlation between Aba and Suzhou is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Aba Chemicals Corp and Suzhou Dongshan Precision in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suzhou Dongshan Precision 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 Suzhou Dongshan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suzhou Dongshan Precision has no effect on the direction of Aba Chemicals i.e., Aba Chemicals and Suzhou Dongshan go up and down completely randomly.

Pair Corralation between Aba Chemicals and Suzhou Dongshan

Assuming the 90 days trading horizon Aba Chemicals Corp is expected to under-perform the Suzhou Dongshan. But the stock apears to be less risky and, when comparing its historical volatility, Aba Chemicals Corp is 1.54 times less risky than Suzhou Dongshan. The stock trades about -0.02 of its potential returns per unit of risk. The Suzhou Dongshan Precision is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,041  in Suzhou Dongshan Precision on December 24, 2024 and sell it today you would earn a total of  372.00  from holding Suzhou Dongshan Precision or generate 12.23% return on investment over 90 days.

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

Aba Chemicals Corp  vs.  Suzhou Dongshan Precision

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.

Suzhou Dongshan Precision

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Suzhou Dongshan Precision are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Suzhou Dongshan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aba Chemicals and Suzhou Dongshan

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

The idea behind Aba Chemicals Corp and Suzhou Dongshan Precision 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.