Correlation Between Wanhua Chemical and GEM

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

Diversification Opportunities for Wanhua Chemical and GEM

0.68

Correlation Coefficient

Wanhua Chemical  GEM

Poor diversification

The 3 months correlation between Wanhua and GEM is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and GEM Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEM Co 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 GEM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEM Co has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and GEM go up and down completely randomly.

Pair Corralation between Wanhua Chemical and GEM

Assuming the 90 days trading horizon Wanhua Chemical Group is expected to under-perform the GEM. But the stock apears to be less risky and, when comparing its historical volatility, Wanhua Chemical Group is 1.29 times less risky than GEM. The stock trades about -0.18 of its potential returns per unit of risk. The GEM Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  658.00  in GEM Co on October 15, 2024 and sell it today you would lose (19.00) from holding GEM Co or give up 2.89% of portfolio value over 90 days.

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

Wanhua Chemical Group  vs.  GEM Co

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

GEM Co

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Wanhua Chemical and GEM

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

The idea behind Wanhua Chemical Group and GEM 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.

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.