Correlation Between Hengli Petrochemical and Xinxiang Chemical

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Can any of the company-specific risk be diversified away by investing in both Hengli Petrochemical and Xinxiang 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 Hengli Petrochemical and Xinxiang Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hengli Petrochemical Co and Xinxiang Chemical Fiber, you can compare the effects of market volatilities on Hengli Petrochemical and Xinxiang 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 Hengli Petrochemical with a short position of Xinxiang Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hengli Petrochemical and Xinxiang Chemical.

Diversification Opportunities for Hengli Petrochemical and Xinxiang Chemical

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between Hengli and Xinxiang is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Petrochemical Co and Xinxiang Chemical Fiber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinxiang Chemical Fiber and Hengli Petrochemical 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 Hengli Petrochemical Co are associated (or correlated) with Xinxiang Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinxiang Chemical Fiber has no effect on the direction of Hengli Petrochemical i.e., Hengli Petrochemical and Xinxiang Chemical go up and down completely randomly.

Pair Corralation between Hengli Petrochemical and Xinxiang Chemical

Assuming the 90 days trading horizon Hengli Petrochemical is expected to generate 3.24 times less return on investment than Xinxiang Chemical. But when comparing it to its historical volatility, Hengli Petrochemical Co is 3.28 times less risky than Xinxiang Chemical. It trades about 0.07 of its potential returns per unit of risk. Xinxiang Chemical Fiber is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  452.00  in Xinxiang Chemical Fiber on September 20, 2024 and sell it today you would earn a total of  25.00  from holding Xinxiang Chemical Fiber or generate 5.53% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Hengli Petrochemical Co  vs.  Xinxiang Chemical Fiber

 Performance 
       Timeline  
Hengli Petrochemical 

Risk-Adjusted Performance

11 of 100

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

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Xinxiang Chemical Fiber are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinxiang Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Hengli Petrochemical and Xinxiang Chemical Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Hengli Petrochemical and Xinxiang Chemical

The main advantage of trading using opposite Hengli Petrochemical and Xinxiang Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hengli Petrochemical position performs unexpectedly, Xinxiang 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 Xinxiang Chemical will offset losses from the drop in Xinxiang Chemical's long position.
The idea behind Hengli Petrochemical Co and Xinxiang Chemical Fiber 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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