Correlation Between Yangmei Chemical and Shenzhen Noposion

Can any of the company-specific risk be diversified away by investing in both Yangmei Chemical and Shenzhen Noposion 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 Shenzhen Noposion 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 Shenzhen Noposion Agrochemicals, you can compare the effects of market volatilities on Yangmei Chemical and Shenzhen Noposion 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 Shenzhen Noposion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yangmei Chemical and Shenzhen Noposion.

Diversification Opportunities for Yangmei Chemical and Shenzhen Noposion

0.85

Correlation Coefficient

Yangmei Chemical  Shenzhen Noposion

Very poor diversification

The 3 months correlation between Yangmei and Shenzhen is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Yangmei Chemical Co and Shenzhen Noposion Agrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Noposion 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 Shenzhen Noposion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Noposion has no effect on the direction of Yangmei Chemical i.e., Yangmei Chemical and Shenzhen Noposion go up and down completely randomly.

Pair Corralation between Yangmei Chemical and Shenzhen Noposion

Assuming the 90 days trading horizon Yangmei Chemical is expected to generate 107.32 times less return on investment than Shenzhen Noposion. In addition to that, Yangmei Chemical is 1.37 times more volatile than Shenzhen Noposion Agrochemicals. It trades about 0.0 of its total potential returns per unit of risk. Shenzhen Noposion Agrochemicals is currently generating about 0.34 per unit of volatility. If you would invest  960.00  in Shenzhen Noposion Agrochemicals on September 21, 2024 and sell it today you would earn a total of  211.00  from holding Shenzhen Noposion Agrochemicals or generate 21.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Yangmei Chemical Co  vs.  Shenzhen Noposion Agrochemical

Yangmei Chemical

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yangmei Chemical Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yangmei Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen Noposion

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Noposion Agrochemicals are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Noposion sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yangmei Chemical and Shenzhen Noposion

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

The idea behind Yangmei Chemical Co and Shenzhen Noposion Agrochemicals 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.