Correlation Between Wanhua Chemical and Hubei Forbon

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

Diversification Opportunities for Wanhua Chemical and Hubei Forbon

0.46

Correlation Coefficient

Wanhua Chemical  Hubei Forbon

Very weak diversification

The 3 months correlation between Wanhua and Hubei is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and Hubei Forbon Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Forbon Technology 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 Forbon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Forbon Technology has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and Hubei Forbon go up and down completely randomly.

Pair Corralation between Wanhua Chemical and Hubei Forbon

Assuming the 90 days trading horizon Wanhua Chemical is expected to generate 6.23 times less return on investment than Hubei Forbon. But when comparing it to its historical volatility, Wanhua Chemical Group is 1.62 times less risky than Hubei Forbon. It trades about 0.04 of its potential returns per unit of risk. Hubei Forbon Technology is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  638.00  in Hubei Forbon Technology on September 6, 2024 and sell it today you would earn a total of  231.00  from holding Hubei Forbon Technology or generate 36.21% return on investment over 90 days.

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

Wanhua Chemical Group  vs.  Hubei Forbon Technology

Wanhua Chemical Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wanhua Chemical Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Hubei Forbon Technology

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Wanhua Chemical and Hubei Forbon

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

The idea behind Wanhua Chemical Group and Hubei Forbon Technology 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.