Correlation Between Yong Shun and Forest Water

Can any of the company-specific risk be diversified away by investing in both Yong Shun and Forest Water 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 Yong Shun and Forest Water into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Yong Shun Chemical and Forest Water Environmental, you can compare the effects of market volatilities on Yong Shun and Forest Water 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 Yong Shun with a short position of Forest Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yong Shun and Forest Water.

Diversification Opportunities for Yong Shun and Forest Water

0.87

Correlation Coefficient

Yong Shun  Forest Water

Very poor diversification

The 3 months correlation between Yong and Forest is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Yong Shun Chemical and Forest Water Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forest Water Environ and Yong Shun 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 Yong Shun Chemical are associated (or correlated) with Forest Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forest Water Environ has no effect on the direction of Yong Shun i.e., Yong Shun and Forest Water go up and down completely randomly.

Pair Corralation between Yong Shun and Forest Water

Assuming the 90 days trading horizon Yong Shun Chemical is expected to under-perform the Forest Water. But the stock apears to be less risky and, when comparing its historical volatility, Yong Shun Chemical is 2.01 times less risky than Forest Water. The stock trades about -0.19 of its potential returns per unit of risk. The Forest Water Environmental is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,710  in Forest Water Environmental on October 26, 2024 and sell it today you would earn a total of  60.00  from holding Forest Water Environmental or generate 1.62% return on investment over 90 days.

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

Yong Shun Chemical  vs.  Forest Water Environmental

Yong Shun Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yong Shun Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Forest Water Environ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Forest Water Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Forest Water is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Yong Shun and Forest Water

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

The idea behind Yong Shun Chemical and Forest Water Environmental 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.