Correlation Between Wanhua Chemical and Lecron Energy

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

Diversification Opportunities for Wanhua Chemical and Lecron Energy

-0.21

Correlation Coefficient

Wanhua Chemical  Lecron Energy

Very good diversification

The 3 months correlation between Wanhua and Lecron is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and Lecron Energy Saving in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lecron Energy Saving 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 Lecron Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lecron Energy Saving has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and Lecron Energy go up and down completely randomly.

Pair Corralation between Wanhua Chemical and Lecron Energy

Assuming the 90 days trading horizon Wanhua Chemical Group is expected to under-perform the Lecron Energy. But the stock apears to be less risky and, when comparing its historical volatility, Wanhua Chemical Group is 3.34 times less risky than Lecron Energy. The stock trades about -0.18 of its potential returns per unit of risk. The Lecron Energy Saving is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  595.00  in Lecron Energy Saving on October 6, 2024 and sell it today you would lose (71.00) from holding Lecron Energy Saving or give up 11.93% of portfolio value over 90 days.

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

Wanhua Chemical Group  vs.  Lecron Energy Saving

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.

Lecron Energy Saving

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lecron Energy Saving 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.

Pair Trading with Wanhua Chemical and Lecron Energy

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

The idea behind Wanhua Chemical Group and Lecron Energy Saving 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.