Correlation Between GRINM Semiconductor and Nanhua Bio

Can any of the company-specific risk be diversified away by investing in both GRINM Semiconductor and Nanhua Bio 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 GRINM Semiconductor and Nanhua Bio into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GRINM Semiconductor Materials and Nanhua Bio Medicine, you can compare the effects of market volatilities on GRINM Semiconductor and Nanhua Bio 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 GRINM Semiconductor with a short position of Nanhua Bio. Check out your portfolio center. Please also check ongoing floating volatility patterns of GRINM Semiconductor and Nanhua Bio.

Diversification Opportunities for GRINM Semiconductor and Nanhua Bio

0.72

Correlation Coefficient

GRINM Semiconductor  Nanhua Bio

Poor diversification

The 3 months correlation between GRINM and Nanhua is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding GRINM Semiconductor Materials and Nanhua Bio Medicine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanhua Bio Medicine and GRINM Semiconductor 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 GRINM Semiconductor Materials are associated (or correlated) with Nanhua Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanhua Bio Medicine has no effect on the direction of GRINM Semiconductor i.e., GRINM Semiconductor and Nanhua Bio go up and down completely randomly.

Pair Corralation between GRINM Semiconductor and Nanhua Bio

Assuming the 90 days trading horizon GRINM Semiconductor Materials is expected to generate 0.7 times more return on investment than Nanhua Bio. However, GRINM Semiconductor Materials is 1.43 times less risky than Nanhua Bio. It trades about -0.04 of its potential returns per unit of risk. Nanhua Bio Medicine is currently generating about -0.06 per unit of risk. If you would invest  1,228  in GRINM Semiconductor Materials on November 29, 2024 and sell it today you would lose (61.00) from holding GRINM Semiconductor Materials or give up 4.97% of portfolio value over 90 days.

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

GRINM Semiconductor Materials  vs.  Nanhua Bio Medicine

GRINM Semiconductor

Risk-Adjusted Performance

Very Weak

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

Nanhua Bio Medicine

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nanhua Bio Medicine 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.

Pair Trading with GRINM Semiconductor and Nanhua Bio

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

The idea behind GRINM Semiconductor Materials and Nanhua Bio Medicine 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.