Correlation Between San Fu and Bin Chuan

Can any of the company-specific risk be diversified away by investing in both San Fu and Bin Chuan 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 San Fu and Bin Chuan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between San Fu Chemical and Bin Chuan Enterprise, you can compare the effects of market volatilities on San Fu and Bin Chuan 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 San Fu with a short position of Bin Chuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of San Fu and Bin Chuan.

Diversification Opportunities for San Fu and Bin Chuan

0.09

Correlation Coefficient

San Fu  Bin Chuan

Significant diversification

The 3 months correlation between San and Bin is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding San Fu Chemical and Bin Chuan Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bin Chuan Enterprise and San Fu 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 San Fu Chemical are associated (or correlated) with Bin Chuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bin Chuan Enterprise has no effect on the direction of San Fu i.e., San Fu and Bin Chuan go up and down completely randomly.

Pair Corralation between San Fu and Bin Chuan

Assuming the 90 days trading horizon San Fu is expected to generate 36.38 times less return on investment than Bin Chuan. But when comparing it to its historical volatility, San Fu Chemical is 1.5 times less risky than Bin Chuan. It trades about 0.01 of its potential returns per unit of risk. Bin Chuan Enterprise is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  2,895  in Bin Chuan Enterprise on September 16, 2024 and sell it today you would earn a total of  3,105  from holding Bin Chuan Enterprise or generate 107.25% return on investment over 90 days.

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

San Fu Chemical  vs.  Bin Chuan Enterprise

San Fu Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in San Fu Chemical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, San Fu is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Bin Chuan Enterprise

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bin Chuan Enterprise are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Bin Chuan showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with San Fu and Bin Chuan

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

The idea behind San Fu Chemical and Bin Chuan Enterprise 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.