Correlation Between Shanghai Phichem and Huaxi Securities

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

By analyzing existing cross correlation between Shanghai Phichem Material and Huaxi Securities Co, you can compare the effects of market volatilities on Shanghai Phichem and Huaxi Securities 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 Shanghai Phichem with a short position of Huaxi Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Phichem and Huaxi Securities.

Diversification Opportunities for Shanghai Phichem and Huaxi Securities

0.64

Correlation Coefficient

Shanghai Phichem  Huaxi Securities

Poor diversification

The 3 months correlation between Shanghai and Huaxi is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Phichem Material and Huaxi Securities Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaxi Securities and Shanghai Phichem 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 Shanghai Phichem Material are associated (or correlated) with Huaxi Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaxi Securities has no effect on the direction of Shanghai Phichem i.e., Shanghai Phichem and Huaxi Securities go up and down completely randomly.

Pair Corralation between Shanghai Phichem and Huaxi Securities

Assuming the 90 days trading horizon Shanghai Phichem Material is expected to generate 2.35 times more return on investment than Huaxi Securities. However, Shanghai Phichem is 2.35 times more volatile than Huaxi Securities Co. It trades about -0.04 of its potential returns per unit of risk. Huaxi Securities Co is currently generating about -0.15 per unit of risk. If you would invest  1,628  in Shanghai Phichem Material on October 6, 2024 and sell it today you would lose (163.00) from holding Shanghai Phichem Material or give up 10.01% of portfolio value over 90 days.

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

Shanghai Phichem Material  vs.  Huaxi Securities Co

Shanghai Phichem Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Phichem Material 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.

Huaxi Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huaxi Securities Co 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.

Pair Trading with Shanghai Phichem and Huaxi Securities

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

The idea behind Shanghai Phichem Material and Huaxi Securities 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.