Correlation Between Wanhua Chemical and Anhui Jinhe

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

Diversification Opportunities for Wanhua Chemical and Anhui Jinhe

0.49

Correlation Coefficient

Wanhua Chemical  Anhui Jinhe

Very weak diversification

The 3 months correlation between Wanhua and Anhui is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and Anhui Jinhe Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anhui Jinhe Industrial 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 Anhui Jinhe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anhui Jinhe Industrial has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and Anhui Jinhe go up and down completely randomly.

Pair Corralation between Wanhua Chemical and Anhui Jinhe

Assuming the 90 days trading horizon Wanhua Chemical Group is expected to under-perform the Anhui Jinhe. But the stock apears to be less risky and, when comparing its historical volatility, Wanhua Chemical Group is 1.25 times less risky than Anhui Jinhe. The stock trades about -0.18 of its potential returns per unit of risk. The Anhui Jinhe Industrial is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,553  in Anhui Jinhe Industrial on October 21, 2024 and sell it today you would lose (144.00) from holding Anhui Jinhe Industrial or give up 5.64% of portfolio value over 90 days.

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

Wanhua Chemical Group  vs.  Anhui Jinhe Industrial

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Anhui Jinhe Industrial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Anhui Jinhe Industrial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Anhui Jinhe 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 Anhui Jinhe

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

The idea behind Wanhua Chemical Group and Anhui Jinhe Industrial 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.