Correlation Between Sichuan Hebang and Baoshan Iron

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

Diversification Opportunities for Sichuan Hebang and Baoshan Iron

-0.5

Correlation Coefficient

Sichuan Hebang  Baoshan Iron

Very good diversification

The 3 months correlation between Sichuan and Baoshan is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Hebang Biotechnology and Baoshan Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baoshan Iron Steel 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 Baoshan Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baoshan Iron Steel has no effect on the direction of Sichuan Hebang i.e., Sichuan Hebang and Baoshan Iron go up and down completely randomly.

Pair Corralation between Sichuan Hebang and Baoshan Iron

Assuming the 90 days trading horizon Sichuan Hebang Biotechnology is expected to under-perform the Baoshan Iron. But the stock apears to be less risky and, when comparing its historical volatility, Sichuan Hebang Biotechnology is 1.33 times less risky than Baoshan Iron. The stock trades about -0.16 of its potential returns per unit of risk. The Baoshan Iron Steel is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  704.00  in Baoshan Iron Steel on December 30, 2024 and sell it today you would earn a total of  29.00  from holding Baoshan Iron Steel or generate 4.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Sichuan Hebang Biotechnology  vs.  Baoshan Iron Steel

Sichuan Hebang Biote

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sichuan Hebang Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Baoshan Iron Steel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Baoshan Iron Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Baoshan Iron 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 Baoshan Iron

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

The idea behind Sichuan Hebang Biotechnology and Baoshan Iron Steel 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.