Correlation Between Wanhua Chemical and Hua Xia

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

Diversification Opportunities for Wanhua Chemical and Hua Xia

-0.41

Correlation Coefficient

Wanhua Chemical  Hua Xia

Very good diversification

The 3 months correlation between Wanhua and Hua is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and Hua Xia Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hua Xia Bank 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 Hua Xia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hua Xia Bank has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and Hua Xia go up and down completely randomly.

Pair Corralation between Wanhua Chemical and Hua Xia

Assuming the 90 days trading horizon Wanhua Chemical Group is expected to under-perform the Hua Xia. In addition to that, Wanhua Chemical is 1.11 times more volatile than Hua Xia Bank. It trades about -0.31 of its total potential returns per unit of risk. Hua Xia Bank is currently generating about -0.07 per unit of volatility. If you would invest  782.00  in Hua Xia Bank on October 11, 2024 and sell it today you would lose (14.00) from holding Hua Xia Bank or give up 1.79% of portfolio value over 90 days.

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

Wanhua Chemical Group  vs.  Hua Xia Bank

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.

Hua Xia Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Xia Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hua Xia 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 Hua Xia

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

The idea behind Wanhua Chemical Group and Hua Xia Bank 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.