Correlation Between Ye Chiu and North Huajin

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

By analyzing existing cross correlation between Ye Chiu Metal and North Huajin Chemical, you can compare the effects of market volatilities on Ye Chiu and North Huajin 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 Ye Chiu with a short position of North Huajin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ye Chiu and North Huajin.

Diversification Opportunities for Ye Chiu and North Huajin

0.8

Correlation Coefficient

Ye Chiu  North Huajin

Very poor diversification

The 3 months correlation between 601388 and North is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Ye Chiu Metal and North Huajin Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Huajin Chemical and Ye Chiu 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 Ye Chiu Metal are associated (or correlated) with North Huajin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Huajin Chemical has no effect on the direction of Ye Chiu i.e., Ye Chiu and North Huajin go up and down completely randomly.

Pair Corralation between Ye Chiu and North Huajin

Assuming the 90 days trading horizon Ye Chiu is expected to generate 1.5 times less return on investment than North Huajin. But when comparing it to its historical volatility, Ye Chiu Metal is 1.12 times less risky than North Huajin. It trades about 0.06 of its potential returns per unit of risk. North Huajin Chemical is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  398.00  in North Huajin Chemical on September 28, 2024 and sell it today you would earn a total of  90.00  from holding North Huajin Chemical or generate 22.61% return on investment over 90 days.

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

Ye Chiu Metal  vs.  North Huajin Chemical

Ye Chiu Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

North Huajin Chemical

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Ye Chiu and North Huajin

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

The idea behind Ye Chiu Metal and North Huajin 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.