Correlation Between Sichuan Hebang and Jinhe Biotechnology

Can any of the company-specific risk be diversified away by investing in both Sichuan Hebang and Jinhe Biotechnology 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 Jinhe Biotechnology 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 Jinhe Biotechnology Co, you can compare the effects of market volatilities on Sichuan Hebang and Jinhe Biotechnology 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 Jinhe Biotechnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Hebang and Jinhe Biotechnology.

Diversification Opportunities for Sichuan Hebang and Jinhe Biotechnology

0.81

Correlation Coefficient

Sichuan Hebang  Jinhe Biotechnology

Very poor diversification

The 3 months correlation between Sichuan and Jinhe is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Hebang Biotechnology and Jinhe Biotechnology Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinhe Biotechnology 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 Jinhe Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinhe Biotechnology has no effect on the direction of Sichuan Hebang i.e., Sichuan Hebang and Jinhe Biotechnology go up and down completely randomly.

Pair Corralation between Sichuan Hebang and Jinhe Biotechnology

Assuming the 90 days trading horizon Sichuan Hebang Biotechnology is expected to under-perform the Jinhe Biotechnology. But the stock apears to be less risky and, when comparing its historical volatility, Sichuan Hebang Biotechnology is 1.24 times less risky than Jinhe Biotechnology. The stock trades about -0.05 of its potential returns per unit of risk. The Jinhe Biotechnology Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  527.00  in Jinhe Biotechnology Co on October 21, 2024 and sell it today you would lose (68.00) from holding Jinhe Biotechnology Co or give up 12.9% of portfolio value over 90 days.

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

Sichuan Hebang Biotechnology  vs.  Jinhe Biotechnology Co

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.

Jinhe Biotechnology

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Jinhe Biotechnology Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jinhe Biotechnology may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sichuan Hebang and Jinhe Biotechnology

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

The idea behind Sichuan Hebang Biotechnology and Jinhe Biotechnology Co 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.