Correlation Between Sichuan Hebang and Nancal Energy

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

Diversification Opportunities for Sichuan Hebang and Nancal Energy

-0.24

Correlation Coefficient

Sichuan Hebang  Nancal Energy

Very good diversification

The 3 months correlation between Sichuan and Nancal is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Hebang Biotechnology and Nancal Energy Saving Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nancal Energy Saving 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 Nancal Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nancal Energy Saving has no effect on the direction of Sichuan Hebang i.e., Sichuan Hebang and Nancal Energy go up and down completely randomly.

Pair Corralation between Sichuan Hebang and Nancal Energy

Assuming the 90 days trading horizon Sichuan Hebang Biotechnology is expected to under-perform the Nancal Energy. But the stock apears to be less risky and, when comparing its historical volatility, Sichuan Hebang Biotechnology is 3.36 times less risky than Nancal Energy. The stock trades about -0.15 of its potential returns per unit of risk. The Nancal Energy Saving Tech is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,051  in Nancal Energy Saving Tech on December 25, 2024 and sell it today you would earn a total of  238.00  from holding Nancal Energy Saving Tech or generate 7.8% return on investment over 90 days.

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

Sichuan Hebang Biotechnology  vs.  Nancal Energy Saving Tech

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.

Nancal Energy Saving

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nancal Energy Saving Tech are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nancal Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sichuan Hebang and Nancal Energy

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

The idea behind Sichuan Hebang Biotechnology and Nancal Energy Saving Tech 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.