Correlation Between Hengli Petrochemical and Changchun BCHT

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

Diversification Opportunities for Hengli Petrochemical and Changchun BCHT

0.42

Correlation Coefficient

Hengli Petrochemical  Changchun BCHT

Very weak diversification

The 3 months correlation between Hengli and Changchun is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Petrochemical Co and Changchun BCHT Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changchun BCHT Biote 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 Changchun BCHT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changchun BCHT Biote has no effect on the direction of Hengli Petrochemical i.e., Hengli Petrochemical and Changchun BCHT go up and down completely randomly.

Pair Corralation between Hengli Petrochemical and Changchun BCHT

Assuming the 90 days trading horizon Hengli Petrochemical Co is expected to generate 0.75 times more return on investment than Changchun BCHT. However, Hengli Petrochemical Co is 1.34 times less risky than Changchun BCHT. It trades about 0.14 of its potential returns per unit of risk. Changchun BCHT Biotechnology is currently generating about -0.33 per unit of risk. If you would invest  1,437  in Hengli Petrochemical Co on October 6, 2024 and sell it today you would earn a total of  53.00  from holding Hengli Petrochemical Co or generate 3.69% return on investment over 90 days.

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

Hengli Petrochemical Co  vs.  Changchun BCHT Biotechnology

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Changchun BCHT Biote

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Changchun BCHT Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Hengli Petrochemical and Changchun BCHT

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

The idea behind Hengli Petrochemical Co and Changchun BCHT Biotechnology 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.