Correlation Between Wanhua Chemical and Hubei Dinglong

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

Diversification Opportunities for Wanhua Chemical and Hubei Dinglong

0.11

Correlation Coefficient

Wanhua Chemical  Hubei Dinglong

Average diversification

The 3 months correlation between Wanhua and Hubei is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and Hubei Dinglong Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Dinglong Chemical 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 Hubei Dinglong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Dinglong Chemical has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and Hubei Dinglong go up and down completely randomly.

Pair Corralation between Wanhua Chemical and Hubei Dinglong

Assuming the 90 days trading horizon Wanhua Chemical Group is expected to under-perform the Hubei Dinglong. But the stock apears to be less risky and, when comparing its historical volatility, Wanhua Chemical Group is 1.46 times less risky than Hubei Dinglong. The stock trades about -0.11 of its potential returns per unit of risk. The Hubei Dinglong Chemical is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,682  in Hubei Dinglong Chemical on November 28, 2024 and sell it today you would earn a total of  398.00  from holding Hubei Dinglong Chemical or generate 14.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Wanhua Chemical Group  vs.  Hubei Dinglong Chemical

Wanhua Chemical Group

Risk-Adjusted Performance

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.

Hubei Dinglong Chemical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Dinglong Chemical are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Dinglong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wanhua Chemical and Hubei Dinglong

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

The idea behind Wanhua Chemical Group and Hubei Dinglong 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 Global Correlations module to find global opportunities by holding instruments from different markets.