Correlation Between Guangdong Liantai and Hengli Petrochemical

Can any of the company-specific risk be diversified away by investing in both Guangdong Liantai and Hengli Petrochemical 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 Guangdong Liantai and Hengli Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangdong Liantai Environmental and Hengli Petrochemical Co, you can compare the effects of market volatilities on Guangdong Liantai and Hengli Petrochemical 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 Guangdong Liantai with a short position of Hengli Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Liantai and Hengli Petrochemical.

Diversification Opportunities for Guangdong Liantai and Hengli Petrochemical

0.64

Correlation Coefficient

Guangdong Liantai  Hengli Petrochemical

Poor diversification

The 3 months correlation between Guangdong and Hengli is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Liantai Environmenta and Hengli Petrochemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengli Petrochemical and Guangdong Liantai 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 Guangdong Liantai Environmental are associated (or correlated) with Hengli Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengli Petrochemical has no effect on the direction of Guangdong Liantai i.e., Guangdong Liantai and Hengli Petrochemical go up and down completely randomly.

Pair Corralation between Guangdong Liantai and Hengli Petrochemical

Assuming the 90 days trading horizon Guangdong Liantai Environmental is expected to generate 1.11 times more return on investment than Hengli Petrochemical. However, Guangdong Liantai is 1.11 times more volatile than Hengli Petrochemical Co. It trades about 0.09 of its potential returns per unit of risk. Hengli Petrochemical Co is currently generating about 0.07 per unit of risk. If you would invest  335.00  in Guangdong Liantai Environmental on September 28, 2024 and sell it today you would earn a total of  70.00  from holding Guangdong Liantai Environmental or generate 20.9% return on investment over 90 days.

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

Guangdong Liantai Environmenta  vs.  Hengli Petrochemical Co

Guangdong Liantai

Risk-Adjusted Performance

3 of 100

Insignificant

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

Hengli Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hengli Petrochemical Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hengli Petrochemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guangdong Liantai and Hengli Petrochemical

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

The idea behind Guangdong Liantai Environmental and Hengli Petrochemical 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.