Correlation Between Yangmei Chemical and Shenyang Chemical

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

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

Diversification Opportunities for Yangmei Chemical and Shenyang Chemical

0.89

Correlation Coefficient

Yangmei Chemical  Shenyang Chemical

Very poor diversification

The 3 months correlation between Yangmei and Shenyang is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Yangmei Chemical Co and Shenyang Chemical Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenyang Chemical and Yangmei 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 Yangmei Chemical Co are associated (or correlated) with Shenyang Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenyang Chemical has no effect on the direction of Yangmei Chemical i.e., Yangmei Chemical and Shenyang Chemical go up and down completely randomly.

Pair Corralation between Yangmei Chemical and Shenyang Chemical

Assuming the 90 days trading horizon Yangmei Chemical Co is expected to under-perform the Shenyang Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Yangmei Chemical Co is 1.06 times less risky than Shenyang Chemical. The stock trades about -0.1 of its potential returns per unit of risk. The Shenyang Chemical Industry is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  378.00  in Shenyang Chemical Industry on December 2, 2024 and sell it today you would lose (53.00) from holding Shenyang Chemical Industry or give up 14.02% of portfolio value over 90 days.

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

Yangmei Chemical Co  vs.  Shenyang Chemical Industry

Yangmei Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Yangmei Chemical Co 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shenyang Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenyang Chemical Industry 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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Yangmei Chemical and Shenyang Chemical

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

The idea behind Yangmei Chemical Co and Shenyang Chemical Industry 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.

Check out your portfolio center.

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.