Correlation Between Wanhua Chemical and City Development

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

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

Diversification Opportunities for Wanhua Chemical and City Development

0.15

Correlation Coefficient

Wanhua Chemical  City Development

Average diversification

The 3 months correlation between Wanhua and City is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and City Development Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Development Env and Wanhua Chemical 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 Wanhua Chemical Group are associated (or correlated) with City Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Development Env has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and City Development go up and down completely randomly.

Pair Corralation between Wanhua Chemical and City Development

Assuming the 90 days trading horizon Wanhua Chemical is expected to generate 20.05 times less return on investment than City Development. But when comparing it to its historical volatility, Wanhua Chemical Group is 1.11 times less risky than City Development. It trades about 0.01 of its potential returns per unit of risk. City Development Environment is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,080  in City Development Environment on September 19, 2024 and sell it today you would earn a total of  257.00  from holding City Development Environment or generate 23.8% return on investment over 90 days.

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

Wanhua Chemical Group  vs.  City Development Environment

Wanhua Chemical Group

Risk-Adjusted Performance

0 of 100

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 somewhat strong basic indicators, Wanhua Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

City Development Env

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Wanhua Chemical and City Development

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

The idea behind Wanhua Chemical Group and City Development Environment 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 Anywhere module to track or share privately all of your investments from the convenience of any device.