Correlation Between Sichuan Hebang and Guangdong Skychem

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

Diversification Opportunities for Sichuan Hebang and Guangdong Skychem

0.47

Correlation Coefficient

Sichuan Hebang  Guangdong Skychem

Very weak diversification

The 3 months correlation between Sichuan and Guangdong is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Hebang Biotechnology and Guangdong Skychem Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Skychem 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 Guangdong Skychem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Skychem has no effect on the direction of Sichuan Hebang i.e., Sichuan Hebang and Guangdong Skychem go up and down completely randomly.

Pair Corralation between Sichuan Hebang and Guangdong Skychem

Assuming the 90 days trading horizon Sichuan Hebang Biotechnology is expected to under-perform the Guangdong Skychem. In addition to that, Sichuan Hebang is 1.17 times more volatile than Guangdong Skychem Technology. It trades about -0.11 of its total potential returns per unit of risk. Guangdong Skychem Technology is currently generating about -0.12 per unit of volatility. If you would invest  12,202  in Guangdong Skychem Technology on October 5, 2024 and sell it today you would lose (797.00) from holding Guangdong Skychem Technology or give up 6.53% of portfolio value over 90 days.

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

Sichuan Hebang Biotechnology  vs.  Guangdong Skychem Technology

Sichuan Hebang Biote

Risk-Adjusted Performance

0 of 100

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.

Guangdong Skychem

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Skychem Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Skychem sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sichuan Hebang and Guangdong Skychem

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

The idea behind Sichuan Hebang Biotechnology and Guangdong Skychem Technology 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.