Correlation Between Wanhua Chemical and Jilin Yatai

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

Diversification Opportunities for Wanhua Chemical and Jilin Yatai

0.27

Correlation Coefficient

Wanhua Chemical  Jilin Yatai

Modest diversification

The 3 months correlation between Wanhua and Jilin is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and Jilin Yatai Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jilin Yatai Group 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 Jilin Yatai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jilin Yatai Group has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and Jilin Yatai go up and down completely randomly.

Pair Corralation between Wanhua Chemical and Jilin Yatai

Assuming the 90 days trading horizon Wanhua Chemical Group is expected to under-perform the Jilin Yatai. But the stock apears to be less risky and, when comparing its historical volatility, Wanhua Chemical Group is 2.06 times less risky than Jilin Yatai. The stock trades about -0.04 of its potential returns per unit of risk. The Jilin Yatai Group is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  236.00  in Jilin Yatai Group on October 25, 2024 and sell it today you would lose (68.00) from holding Jilin Yatai Group or give up 28.81% of portfolio value over 90 days.

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

Wanhua Chemical Group  vs.  Jilin Yatai Group

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.

Jilin Yatai Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jilin Yatai Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Jilin Yatai 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 Jilin Yatai

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

The idea behind Wanhua Chemical Group and Jilin Yatai Group 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.