Correlation Between Hubei Xingfa and Shandong Polymer

Can any of the company-specific risk be diversified away by investing in both Hubei Xingfa and Shandong Polymer 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 Hubei Xingfa and Shandong Polymer into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hubei Xingfa Chemicals and Shandong Polymer Biochemicals, you can compare the effects of market volatilities on Hubei Xingfa and Shandong Polymer 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 Hubei Xingfa with a short position of Shandong Polymer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Xingfa and Shandong Polymer.

Diversification Opportunities for Hubei Xingfa and Shandong Polymer

0.81

Correlation Coefficient

Hubei Xingfa  Shandong Polymer

Very poor diversification

The 3 months correlation between Hubei and Shandong is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Xingfa Chemicals and Shandong Polymer Biochemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Polymer Bio and Hubei Xingfa 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 Hubei Xingfa Chemicals are associated (or correlated) with Shandong Polymer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Polymer Bio has no effect on the direction of Hubei Xingfa i.e., Hubei Xingfa and Shandong Polymer go up and down completely randomly.

Pair Corralation between Hubei Xingfa and Shandong Polymer

Assuming the 90 days trading horizon Hubei Xingfa is expected to generate 1.18 times less return on investment than Shandong Polymer. But when comparing it to its historical volatility, Hubei Xingfa Chemicals is 1.18 times less risky than Shandong Polymer. It trades about 0.15 of its potential returns per unit of risk. Shandong Polymer Biochemicals is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  354.00  in Shandong Polymer Biochemicals on September 22, 2024 and sell it today you would earn a total of  102.00  from holding Shandong Polymer Biochemicals or generate 28.81% return on investment over 90 days.

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

Hubei Xingfa Chemicals  vs.  Shandong Polymer Biochemicals

Hubei Xingfa Chemicals

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Xingfa Chemicals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Xingfa sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Polymer Bio

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Polymer Biochemicals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Polymer sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hubei Xingfa and Shandong Polymer

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

The idea behind Hubei Xingfa Chemicals and Shandong Polymer Biochemicals 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.