Correlation Between Sichuan Hebang and North Huajin

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

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

Diversification Opportunities for Sichuan Hebang and North Huajin

0.6

Correlation Coefficient

Sichuan Hebang  North Huajin

Poor diversification

The 3 months correlation between Sichuan and North is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Hebang Biotechnology 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 Sichuan Hebang 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 Sichuan Hebang Biotechnology 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 Sichuan Hebang i.e., Sichuan Hebang and North Huajin go up and down completely randomly.

Pair Corralation between Sichuan Hebang and North Huajin

Assuming the 90 days trading horizon Sichuan Hebang is expected to generate 1.88 times less return on investment than North Huajin. But when comparing it to its historical volatility, Sichuan Hebang Biotechnology is 1.28 times less risky than North Huajin. It trades about 0.01 of its potential returns per unit of risk. North Huajin Chemical is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  448.00  in North Huajin Chemical on October 22, 2024 and sell it today you would earn a total of  6.00  from holding North Huajin Chemical or generate 1.34% return on investment over 90 days.

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

Sichuan Hebang Biotechnology  vs.  North Huajin Chemical

Sichuan Hebang Biote

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Hebang Biotechnology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sichuan Hebang 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

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in North Huajin Chemical are ranked lower than 1 (%) 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 Sichuan Hebang and North Huajin

The main advantage of trading using opposite Sichuan Hebang and North Huajin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sichuan Hebang 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 Sichuan Hebang Biotechnology 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.