Correlation Between Aba Chemicals and Guanghui Energy

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

Diversification Opportunities for Aba Chemicals and Guanghui Energy

0.83

Correlation Coefficient

Aba Chemicals  Guanghui Energy

Very poor diversification

The 3 months correlation between Aba and Guanghui is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Aba Chemicals Corp and Guanghui Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guanghui Energy 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 Guanghui Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guanghui Energy has no effect on the direction of Aba Chemicals i.e., Aba Chemicals and Guanghui Energy go up and down completely randomly.

Pair Corralation between Aba Chemicals and Guanghui Energy

Assuming the 90 days trading horizon Aba Chemicals Corp is expected to generate 2.07 times more return on investment than Guanghui Energy. However, Aba Chemicals is 2.07 times more volatile than Guanghui Energy Co. It trades about 0.03 of its potential returns per unit of risk. Guanghui Energy Co is currently generating about -0.06 per unit of risk. If you would invest  711.00  in Aba Chemicals Corp on December 25, 2024 and sell it today you would earn a total of  22.00  from holding Aba Chemicals Corp or generate 3.09% return on investment over 90 days.

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

Aba Chemicals Corp  vs.  Guanghui Energy Co

Aba Chemicals Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aba Chemicals Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Guanghui Energy

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Aba Chemicals and Guanghui Energy

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

The idea behind Aba Chemicals Corp and Guanghui Energy Co 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.