Correlation Between Hubei Xingfa and Guizhou Chanhen

Can any of the company-specific risk be diversified away by investing in both Hubei Xingfa and Guizhou Chanhen 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 Guizhou Chanhen 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 Guizhou Chanhen Chemical, you can compare the effects of market volatilities on Hubei Xingfa and Guizhou Chanhen 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 Guizhou Chanhen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hubei Xingfa and Guizhou Chanhen.

Diversification Opportunities for Hubei Xingfa and Guizhou Chanhen

0.83

Correlation Coefficient

Hubei Xingfa  Guizhou Chanhen

Very poor diversification

The 3 months correlation between Hubei and Guizhou is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Hubei Xingfa Chemicals and Guizhou Chanhen Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guizhou Chanhen Chemical 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 Guizhou Chanhen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guizhou Chanhen Chemical has no effect on the direction of Hubei Xingfa i.e., Hubei Xingfa and Guizhou Chanhen go up and down completely randomly.

Pair Corralation between Hubei Xingfa and Guizhou Chanhen

Assuming the 90 days trading horizon Hubei Xingfa is expected to generate 1.53 times less return on investment than Guizhou Chanhen. But when comparing it to its historical volatility, Hubei Xingfa Chemicals is 1.18 times less risky than Guizhou Chanhen. It trades about 0.15 of its potential returns per unit of risk. Guizhou Chanhen Chemical is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,719  in Guizhou Chanhen Chemical on September 21, 2024 and sell it today you would earn a total of  691.00  from holding Guizhou Chanhen Chemical or generate 40.2% 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.  Guizhou Chanhen Chemical

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.

Guizhou Chanhen Chemical

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guizhou Chanhen Chemical are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guizhou Chanhen sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hubei Xingfa and Guizhou Chanhen

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

The idea behind Hubei Xingfa Chemicals and Guizhou Chanhen Chemical 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.