Correlation Between Kangxin New and Hengli Petrochemical

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

By analyzing existing cross correlation between Kangxin New Materials and Hengli Petrochemical Co, you can compare the effects of market volatilities on Kangxin New and Hengli Petrochemical 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 Kangxin New with a short position of Hengli Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kangxin New and Hengli Petrochemical.

Diversification Opportunities for Kangxin New and Hengli Petrochemical

0.34

Correlation Coefficient

Kangxin New  Hengli Petrochemical

Weak diversification

The 3 months correlation between Kangxin and Hengli is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Kangxin New Materials and Hengli Petrochemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengli Petrochemical and Kangxin 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 Kangxin New Materials are associated (or correlated) with Hengli Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengli Petrochemical has no effect on the direction of Kangxin New i.e., Kangxin New and Hengli Petrochemical go up and down completely randomly.

Pair Corralation between Kangxin New and Hengli Petrochemical

Assuming the 90 days trading horizon Kangxin New Materials is expected to under-perform the Hengli Petrochemical. In addition to that, Kangxin New is 1.68 times more volatile than Hengli Petrochemical Co. It trades about -0.01 of its total potential returns per unit of risk. Hengli Petrochemical Co is currently generating about 0.0 per unit of volatility. If you would invest  1,604  in Hengli Petrochemical Co on October 4, 2024 and sell it today you would lose (69.00) from holding Hengli Petrochemical Co or give up 4.3% of portfolio value over 90 days.

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

Kangxin New Materials  vs.  Hengli Petrochemical Co

Kangxin New Materials

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kangxin New Materials are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kangxin New may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Hengli Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Kangxin New and Hengli Petrochemical

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

The idea behind Kangxin New Materials and Hengli Petrochemical 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.