Correlation Between Shandong Huifa and Yingde Greatchem

Can any of the company-specific risk be diversified away by investing in both Shandong Huifa and Yingde Greatchem 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 Shandong Huifa and Yingde Greatchem into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shandong Huifa Foodstuff and Yingde Greatchem Chemicals, you can compare the effects of market volatilities on Shandong Huifa and Yingde Greatchem 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 Shandong Huifa with a short position of Yingde Greatchem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Huifa and Yingde Greatchem.

Diversification Opportunities for Shandong Huifa and Yingde Greatchem

0.84

Correlation Coefficient

Shandong Huifa  Yingde Greatchem

Very poor diversification

The 3 months correlation between Shandong and Yingde is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Huifa Foodstuff and Yingde Greatchem Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yingde Greatchem Che and Shandong Huifa 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 Shandong Huifa Foodstuff are associated (or correlated) with Yingde Greatchem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yingde Greatchem Che has no effect on the direction of Shandong Huifa i.e., Shandong Huifa and Yingde Greatchem go up and down completely randomly.

Pair Corralation between Shandong Huifa and Yingde Greatchem

Assuming the 90 days trading horizon Shandong Huifa Foodstuff is expected to generate 2.77 times more return on investment than Yingde Greatchem. However, Shandong Huifa is 2.77 times more volatile than Yingde Greatchem Chemicals. It trades about 0.19 of its potential returns per unit of risk. Yingde Greatchem Chemicals is currently generating about 0.03 per unit of risk. If you would invest  1,075  in Shandong Huifa Foodstuff on September 12, 2024 and sell it today you would earn a total of  248.00  from holding Shandong Huifa Foodstuff or generate 23.07% return on investment over 90 days.

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

Shandong Huifa Foodstuff  vs.  Yingde Greatchem Chemicals

Shandong Huifa Foodstuff

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Huifa Foodstuff are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Huifa sustained solid returns over the last few months and may actually be approaching a breakup point.

Yingde Greatchem Che

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yingde Greatchem Chemicals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Yingde Greatchem sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Huifa and Yingde Greatchem

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

The idea behind Shandong Huifa Foodstuff and Yingde Greatchem Chemicals 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.