Correlation Between Hengli Petrochemical and Vatti Corp

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

Diversification Opportunities for Hengli Petrochemical and Vatti Corp

-0.08

Correlation Coefficient

Hengli Petrochemical  Vatti Corp

Good diversification

The 3 months correlation between Hengli and Vatti is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Petrochemical Co and Vatti Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vatti Corp 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 Vatti Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vatti Corp has no effect on the direction of Hengli Petrochemical i.e., Hengli Petrochemical and Vatti Corp go up and down completely randomly.

Pair Corralation between Hengli Petrochemical and Vatti Corp

Assuming the 90 days trading horizon Hengli Petrochemical Co is expected to generate 0.75 times more return on investment than Vatti Corp. However, Hengli Petrochemical Co is 1.33 times less risky than Vatti Corp. It trades about 0.04 of its potential returns per unit of risk. Vatti Corp is currently generating about 0.03 per unit of risk. If you would invest  1,380  in Hengli Petrochemical Co on October 13, 2024 and sell it today you would earn a total of  105.00  from holding Hengli Petrochemical Co or generate 7.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.3%
Values	Daily Returns

Hengli Petrochemical Co  vs.  Vatti Corp

Hengli Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hengli Petrochemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hengli Petrochemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vatti Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vatti Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Vatti Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hengli Petrochemical and Vatti Corp

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

The idea behind Hengli Petrochemical Co and Vatti Corp 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.