Correlation Between Hengli Petrochemical and Daoming OpticsChemical

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

Diversification Opportunities for Hengli Petrochemical and Daoming OpticsChemical

0.78

Correlation Coefficient

Hengli Petrochemical  Daoming OpticsChemical

Poor diversification

The 3 months correlation between Hengli and Daoming is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Petrochemical Co and Daoming OpticsChemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daoming OpticsChemical 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 Daoming OpticsChemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daoming OpticsChemical has no effect on the direction of Hengli Petrochemical i.e., Hengli Petrochemical and Daoming OpticsChemical go up and down completely randomly.

Pair Corralation between Hengli Petrochemical and Daoming OpticsChemical

Assuming the 90 days trading horizon Hengli Petrochemical is expected to generate 3.83 times less return on investment than Daoming OpticsChemical. But when comparing it to its historical volatility, Hengli Petrochemical Co is 1.51 times less risky than Daoming OpticsChemical. It trades about 0.07 of its potential returns per unit of risk. Daoming OpticsChemical Co is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  840.00  in Daoming OpticsChemical Co on September 20, 2024 and sell it today you would earn a total of  76.00  from holding Daoming OpticsChemical Co or generate 9.05% return on investment over 90 days.

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

Hengli Petrochemical Co  vs.  Daoming OpticsChemical Co

Hengli Petrochemical

Risk-Adjusted Performance

11 of 100

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.

Daoming OpticsChemical

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Daoming OpticsChemical Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daoming OpticsChemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hengli Petrochemical and Daoming OpticsChemical

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

The idea behind Hengli Petrochemical Co and Daoming OpticsChemical 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.