Correlation Between Zhejiang Juhua and Sichuan Hebang

Can any of the company-specific risk be diversified away by investing in both Zhejiang Juhua and Sichuan Hebang 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 Zhejiang Juhua and Sichuan Hebang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhejiang Juhua Co and Sichuan Hebang Biotechnology, you can compare the effects of market volatilities on Zhejiang Juhua and Sichuan Hebang 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 Zhejiang Juhua with a short position of Sichuan Hebang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang Juhua and Sichuan Hebang.

Diversification Opportunities for Zhejiang Juhua and Sichuan Hebang

0.94

Correlation Coefficient

Zhejiang Juhua  Sichuan Hebang

Almost no diversification

The 3 months correlation between Zhejiang and Sichuan is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang Juhua Co and Sichuan Hebang Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Hebang Biote and Zhejiang Juhua 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 Zhejiang Juhua Co are associated (or correlated) with Sichuan Hebang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Hebang Biote has no effect on the direction of Zhejiang Juhua i.e., Zhejiang Juhua and Sichuan Hebang go up and down completely randomly.

Pair Corralation between Zhejiang Juhua and Sichuan Hebang

Assuming the 90 days trading horizon Zhejiang Juhua Co is expected to generate 1.5 times more return on investment than Sichuan Hebang. However, Zhejiang Juhua is 1.5 times more volatile than Sichuan Hebang Biotechnology. It trades about 0.04 of its potential returns per unit of risk. Sichuan Hebang Biotechnology is currently generating about -0.04 per unit of risk. If you would invest  1,617  in Zhejiang Juhua Co on September 2, 2024 and sell it today you would earn a total of  620.00  from holding Zhejiang Juhua Co or generate 38.34% return on investment over 90 days.

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

Zhejiang Juhua Co  vs.  Sichuan Hebang Biotechnology

Zhejiang Juhua

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Juhua Co are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Juhua sustained solid returns over the last few months and may actually be approaching a breakup point.

Sichuan Hebang Biote

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Hebang Biotechnology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Hebang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zhejiang Juhua and Sichuan Hebang

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

The idea behind Zhejiang Juhua Co and Sichuan Hebang Biotechnology 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.