Correlation Between Liuzhou Chemical and HeNan Splendor

Can any of the company-specific risk be diversified away by investing in both Liuzhou Chemical and HeNan Splendor 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 Liuzhou Chemical and HeNan Splendor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Liuzhou Chemical Industry and HeNan Splendor Science, you can compare the effects of market volatilities on Liuzhou Chemical and HeNan Splendor 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 Liuzhou Chemical with a short position of HeNan Splendor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liuzhou Chemical and HeNan Splendor.

Diversification Opportunities for Liuzhou Chemical and HeNan Splendor

0.86

Correlation Coefficient

Liuzhou Chemical  HeNan Splendor

Very poor diversification

The 3 months correlation between Liuzhou and HeNan is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Liuzhou Chemical Industry and HeNan Splendor Science in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HeNan Splendor Science and Liuzhou Chemical 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 Liuzhou Chemical Industry are associated (or correlated) with HeNan Splendor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HeNan Splendor Science has no effect on the direction of Liuzhou Chemical i.e., Liuzhou Chemical and HeNan Splendor go up and down completely randomly.

Pair Corralation between Liuzhou Chemical and HeNan Splendor

Assuming the 90 days trading horizon Liuzhou Chemical is expected to generate 10.92 times less return on investment than HeNan Splendor. But when comparing it to its historical volatility, Liuzhou Chemical Industry is 1.2 times less risky than HeNan Splendor. It trades about 0.0 of its potential returns per unit of risk. HeNan Splendor Science is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  821.00  in HeNan Splendor Science on October 4, 2024 and sell it today you would earn a total of  160.00  from holding HeNan Splendor Science or generate 19.49% return on investment over 90 days.

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

Liuzhou Chemical Industry  vs.  HeNan Splendor Science

Liuzhou Chemical Industry

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liuzhou Chemical Industry are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liuzhou Chemical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

HeNan Splendor Science

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HeNan Splendor Science are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, HeNan Splendor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Liuzhou Chemical and HeNan Splendor

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

The idea behind Liuzhou Chemical Industry and HeNan Splendor Science 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.