Correlation Between Zhongyin Babi and Wuxi Chemical

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

By analyzing existing cross correlation between Zhongyin Babi Food and Wuxi Chemical Equipment, you can compare the effects of market volatilities on Zhongyin Babi and Wuxi 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 Zhongyin Babi with a short position of Wuxi Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhongyin Babi and Wuxi Chemical.

Diversification Opportunities for Zhongyin Babi and Wuxi Chemical

0.49

Correlation Coefficient

Zhongyin Babi  Wuxi Chemical

Very weak diversification

The 3 months correlation between Zhongyin and Wuxi is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Zhongyin Babi Food and Wuxi Chemical Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wuxi Chemical Equipment and Zhongyin Babi 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 Zhongyin Babi Food are associated (or correlated) with Wuxi Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wuxi Chemical Equipment has no effect on the direction of Zhongyin Babi i.e., Zhongyin Babi and Wuxi Chemical go up and down completely randomly.

Pair Corralation between Zhongyin Babi and Wuxi Chemical

Assuming the 90 days trading horizon Zhongyin Babi is expected to generate 4.61 times less return on investment than Wuxi Chemical. In addition to that, Zhongyin Babi is 1.45 times more volatile than Wuxi Chemical Equipment. It trades about 0.01 of its total potential returns per unit of risk. Wuxi Chemical Equipment is currently generating about 0.08 per unit of volatility. If you would invest  3,480  in Wuxi Chemical Equipment on December 25, 2024 and sell it today you would earn a total of  224.00  from holding Wuxi Chemical Equipment or generate 6.44% return on investment over 90 days.

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

Zhongyin Babi Food  vs.  Wuxi Chemical Equipment

Zhongyin Babi Food

Risk-Adjusted Performance

Very Weak

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

Wuxi Chemical Equipment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wuxi Chemical Equipment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuxi Chemical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Zhongyin Babi and Wuxi Chemical

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

The idea behind Zhongyin Babi Food and Wuxi Chemical Equipment 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.