Correlation Between Nantong Jiangshan and Hubei Dinglong

Can any of the company-specific risk be diversified away by investing in both Nantong Jiangshan and Hubei Dinglong 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 Nantong Jiangshan and Hubei Dinglong into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nantong Jiangshan Agrochemical and Hubei Dinglong Chemical, you can compare the effects of market volatilities on Nantong Jiangshan and Hubei Dinglong 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 Nantong Jiangshan with a short position of Hubei Dinglong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nantong Jiangshan and Hubei Dinglong.

Diversification Opportunities for Nantong Jiangshan and Hubei Dinglong

0.78

Correlation Coefficient

Nantong Jiangshan  Hubei Dinglong

Poor diversification

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

Pair Corralation between Nantong Jiangshan and Hubei Dinglong

Assuming the 90 days trading horizon Nantong Jiangshan is expected to generate 1.69 times less return on investment than Hubei Dinglong. But when comparing it to its historical volatility, Nantong Jiangshan Agrochemical is 1.4 times less risky than Hubei Dinglong. It trades about 0.15 of its potential returns per unit of risk. Hubei Dinglong Chemical is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,876  in Hubei Dinglong Chemical on September 16, 2024 and sell it today you would earn a total of  817.00  from holding Hubei Dinglong Chemical or generate 43.55% return on investment over 90 days.

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

Nantong Jiangshan Agrochemical  vs.  Hubei Dinglong Chemical

Nantong Jiangshan

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nantong Jiangshan Agrochemical are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nantong Jiangshan sustained solid returns over the last few months and may actually be approaching a breakup point.

Hubei Dinglong Chemical

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Nantong Jiangshan and Hubei Dinglong

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

The idea behind Nantong Jiangshan Agrochemical and Hubei Dinglong Chemical 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.