Correlation Between Hengli Petrochemical and Jinhe Biotechnology

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

Diversification Opportunities for Hengli Petrochemical and Jinhe Biotechnology

0.71

Correlation Coefficient

Hengli Petrochemical  Jinhe Biotechnology

Poor diversification

The 3 months correlation between Hengli and Jinhe is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Petrochemical Co and Jinhe Biotechnology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinhe Biotechnology 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 Jinhe Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinhe Biotechnology has no effect on the direction of Hengli Petrochemical i.e., Hengli Petrochemical and Jinhe Biotechnology go up and down completely randomly.

Pair Corralation between Hengli Petrochemical and Jinhe Biotechnology

Assuming the 90 days trading horizon Hengli Petrochemical is expected to generate 1.76 times less return on investment than Jinhe Biotechnology. But when comparing it to its historical volatility, Hengli Petrochemical Co is 1.07 times less risky than Jinhe Biotechnology. It trades about 0.06 of its potential returns per unit of risk. Jinhe Biotechnology Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  391.00  in Jinhe Biotechnology Co on September 27, 2024 and sell it today you would earn a total of  50.00  from holding Jinhe Biotechnology Co or generate 12.79% 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.  Jinhe Biotechnology Co

Hengli Petrochemical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hengli Petrochemical Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengli Petrochemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Jinhe Biotechnology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jinhe Biotechnology Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jinhe Biotechnology sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hengli Petrochemical and Jinhe Biotechnology

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

The idea behind Hengli Petrochemical Co and Jinhe Biotechnology 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.