Correlation Between Wanhua Chemical and Liuzhou Chemical

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

Diversification Opportunities for Wanhua Chemical and Liuzhou Chemical

-0.4

Correlation Coefficient

Wanhua Chemical  Liuzhou Chemical

Very good diversification

The 3 months correlation between Wanhua and Liuzhou is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and Liuzhou Chemical Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liuzhou Chemical Industry 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 Liuzhou Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liuzhou Chemical Industry has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and Liuzhou Chemical go up and down completely randomly.

Pair Corralation between Wanhua Chemical and Liuzhou Chemical

Assuming the 90 days trading horizon Wanhua Chemical Group is expected to under-perform the Liuzhou Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Wanhua Chemical Group is 2.43 times less risky than Liuzhou Chemical. The stock trades about -0.13 of its potential returns per unit of risk. The Liuzhou Chemical Industry is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  252.00  in Liuzhou Chemical Industry on October 20, 2024 and sell it today you would earn a total of  176.00  from holding Liuzhou Chemical Industry or generate 69.84% return on investment over 90 days.

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

Wanhua Chemical Group  vs.  Liuzhou Chemical Industry

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 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.

Liuzhou Chemical Industry

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Liuzhou Chemical Industry are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liuzhou Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wanhua Chemical and Liuzhou Chemical

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

The idea behind Wanhua Chemical Group and Liuzhou Chemical Industry 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.