Correlation Between Wanhua Chemical and Sichuan Qiaoyuan

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

Diversification Opportunities for Wanhua Chemical and Sichuan Qiaoyuan

-0.35

Correlation Coefficient

Wanhua Chemical  Sichuan Qiaoyuan

Very good diversification

The 3 months correlation between Wanhua and Sichuan is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and Sichuan Qiaoyuan Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Qiaoyuan Gas 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 Sichuan Qiaoyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Qiaoyuan Gas has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and Sichuan Qiaoyuan go up and down completely randomly.

Pair Corralation between Wanhua Chemical and Sichuan Qiaoyuan

Assuming the 90 days trading horizon Wanhua Chemical Group is expected to under-perform the Sichuan Qiaoyuan. But the stock apears to be less risky and, when comparing its historical volatility, Wanhua Chemical Group is 1.84 times less risky than Sichuan Qiaoyuan. The stock trades about -0.21 of its potential returns per unit of risk. The Sichuan Qiaoyuan Gas is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,365  in Sichuan Qiaoyuan Gas on October 10, 2024 and sell it today you would earn a total of  120.00  from holding Sichuan Qiaoyuan Gas or generate 3.57% return on investment over 90 days.

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

Wanhua Chemical Group  vs.  Sichuan Qiaoyuan Gas

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.

Sichuan Qiaoyuan Gas

Risk-Adjusted Performance

2 of 100

Weak

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

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

The idea behind Wanhua Chemical Group and Sichuan Qiaoyuan Gas 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.