Correlation Between Heilongjiang Transport and Nanning Chemical

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

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

Diversification Opportunities for Heilongjiang Transport and Nanning Chemical

0.65

Correlation Coefficient

Heilongjiang Transport  Nanning Chemical

Poor diversification

The 3 months correlation between Heilongjiang and Nanning is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Heilongjiang Transport Develop and Nanning Chemical Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanning Chemical Industry and Heilongjiang Transport 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 Heilongjiang Transport Development are associated (or correlated) with Nanning Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanning Chemical Industry has no effect on the direction of Heilongjiang Transport i.e., Heilongjiang Transport and Nanning Chemical go up and down completely randomly.

Pair Corralation between Heilongjiang Transport and Nanning Chemical

Assuming the 90 days trading horizon Heilongjiang Transport is expected to generate 1.33 times less return on investment than Nanning Chemical. But when comparing it to its historical volatility, Heilongjiang Transport Development is 1.01 times less risky than Nanning Chemical. It trades about 0.02 of its potential returns per unit of risk. Nanning Chemical Industry is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,383  in Nanning Chemical Industry on October 10, 2024 and sell it today you would earn a total of  362.00  from holding Nanning Chemical Industry or generate 26.17% return on investment over 90 days.

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

Heilongjiang Transport Develop  vs.  Nanning Chemical Industry

Heilongjiang Transport

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heilongjiang Transport Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Heilongjiang Transport is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nanning Chemical Industry

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nanning Chemical Industry are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nanning Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Heilongjiang Transport and Nanning Chemical

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

The idea behind Heilongjiang Transport Development and Nanning 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.