Correlation Between Hua Xia and Wanhua Chemical

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

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

Diversification Opportunities for Hua Xia and Wanhua Chemical

0.63

Correlation Coefficient

Hua Xia  Wanhua Chemical

Poor diversification

The 3 months correlation between Hua and Wanhua is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Hua Xia Bank 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 Hua Xia 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 Hua Xia Bank 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 Hua Xia i.e., Hua Xia and Wanhua Chemical go up and down completely randomly.

Pair Corralation between Hua Xia and Wanhua Chemical

Assuming the 90 days trading horizon Hua Xia Bank is expected to generate 0.88 times more return on investment than Wanhua Chemical. However, Hua Xia Bank is 1.14 times less risky than Wanhua Chemical. It trades about -0.05 of its potential returns per unit of risk. Wanhua Chemical Group is currently generating about -0.1 per unit of risk. If you would invest  785.00  in Hua Xia Bank on December 23, 2024 and sell it today you would lose (33.00) from holding Hua Xia Bank or give up 4.2% of portfolio value over 90 days.

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

Hua Xia Bank  vs.  Wanhua Chemical Group

Hua Xia Bank

Risk-Adjusted Performance

Very Weak

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

Wanhua Chemical Group

Risk-Adjusted Performance

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 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.

Pair Trading with Hua Xia and Wanhua Chemical

The main advantage of trading using opposite Hua Xia and Wanhua Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hua Xia 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 Hua Xia Bank 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.