Correlation Between Hengli Petrochemical and Lier Chemical

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

Diversification Opportunities for Hengli Petrochemical and Lier Chemical

HengliLierDiversified AwayHengliLierDiversified Away100%
0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Hengli and Lier is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Petrochemical Co and Lier Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lier Chemical 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 Lier Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lier Chemical has no effect on the direction of Hengli Petrochemical i.e., Hengli Petrochemical and Lier Chemical go up and down completely randomly.

Pair Corralation between Hengli Petrochemical and Lier Chemical

Assuming the 90 days trading horizon Hengli Petrochemical Co is expected to generate 0.9 times more return on investment than Lier Chemical. However, Hengli Petrochemical Co is 1.11 times less risky than Lier Chemical. It trades about -0.01 of its potential returns per unit of risk. Lier Chemical Co is currently generating about -0.03 per unit of risk. If you would invest  1,566  in Hengli Petrochemical Co on September 28, 2024 and sell it today you would lose (40.00) from holding Hengli Petrochemical Co or give up 2.55% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Hengli Petrochemical Co  vs.  Lier Chemical Co

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 051015202530
JavaScript chart by amCharts 3.21.15600346 002258
       Timeline  
Hengli Petrochemical 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec13.51414.51515.51616.517
Lier Chemical 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lier Chemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lier Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec7.588.599.5

Hengli Petrochemical and Lier Chemical Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-7.43-5.57-3.7-1.840.03321.963.965.957.94 0.020.030.040.050.060.07
JavaScript chart by amCharts 3.21.15600346 002258
       Returns  

Pair Trading with Hengli Petrochemical and Lier Chemical

The main advantage of trading using opposite Hengli Petrochemical and Lier Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hengli Petrochemical position performs unexpectedly, Lier 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 Lier Chemical will offset losses from the drop in Lier Chemical's long position.
The idea behind Hengli Petrochemical Co and Lier Chemical Co 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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