Correlation Between Shengtak New and Wanhua Chemical

Can any of the company-specific risk be diversified away by investing in both Shengtak New and Wanhua Chemical 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 Shengtak New and Wanhua Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shengtak New Material and Wanhua Chemical Group, you can compare the effects of market volatilities on Shengtak New and Wanhua Chemical 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 Shengtak New with a short position of Wanhua Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shengtak New and Wanhua Chemical.

Diversification Opportunities for Shengtak New and Wanhua Chemical

0.28

Correlation Coefficient

Shengtak New  Wanhua Chemical

Modest diversification

The 3 months correlation between Shengtak and Wanhua is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Shengtak New Material and Wanhua Chemical Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wanhua Chemical Group and Shengtak New 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 Shengtak New Material are associated (or correlated) with Wanhua Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wanhua Chemical Group has no effect on the direction of Shengtak New i.e., Shengtak New and Wanhua Chemical go up and down completely randomly.

Pair Corralation between Shengtak New and Wanhua Chemical

Assuming the 90 days trading horizon Shengtak New Material is expected to generate 2.18 times more return on investment than Wanhua Chemical. However, Shengtak New is 2.18 times more volatile than Wanhua Chemical Group. It trades about 0.02 of its potential returns per unit of risk. Wanhua Chemical Group is currently generating about -0.04 per unit of risk. If you would invest  3,043  in Shengtak New Material on October 5, 2024 and sell it today you would lose (53.00) from holding Shengtak New Material or give up 1.74% of portfolio value over 90 days.

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

Shengtak New Material  vs.  Wanhua Chemical Group

Shengtak New Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shengtak New Material 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.

Wanhua Chemical Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wanhua Chemical Group 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 Shengtak New and Wanhua Chemical

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

The idea behind Shengtak New Material and Wanhua Chemical 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.