Correlation Between Guangdong Marubi and North Chemical

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

By analyzing existing cross correlation between Guangdong Marubi Biotechnology and North Chemical Industries, you can compare the effects of market volatilities on Guangdong Marubi and North Chemical 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 Marubi with a short position of North Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Marubi and North Chemical.

Diversification Opportunities for Guangdong Marubi and North Chemical

-0.16

Correlation Coefficient

Guangdong Marubi  North Chemical

Good diversification

The 3 months correlation between Guangdong and North is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Marubi Biotechnology and North Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Chemical Industries and Guangdong Marubi 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 Marubi Biotechnology are associated (or correlated) with North Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Chemical Industries has no effect on the direction of Guangdong Marubi i.e., Guangdong Marubi and North Chemical go up and down completely randomly.

Pair Corralation between Guangdong Marubi and North Chemical

Assuming the 90 days trading horizon Guangdong Marubi Biotechnology is expected to generate 1.17 times more return on investment than North Chemical. However, Guangdong Marubi is 1.17 times more volatile than North Chemical Industries. It trades about 0.15 of its potential returns per unit of risk. North Chemical Industries is currently generating about -0.32 per unit of risk. If you would invest  2,927  in Guangdong Marubi Biotechnology on October 10, 2024 and sell it today you would earn a total of  313.00  from holding Guangdong Marubi Biotechnology or generate 10.69% return on investment over 90 days.

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

Guangdong Marubi Biotechnology  vs.  North Chemical Industries

Guangdong Marubi Bio

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Marubi Biotechnology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Marubi sustained solid returns over the last few months and may actually be approaching a breakup point.

North Chemical Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North Chemical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, North Chemical 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 Marubi and North Chemical

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

The idea behind Guangdong Marubi Biotechnology and North Chemical Industries 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..