Correlation Between CHEMICAL INDUSTRIES and New China

Can any of the company-specific risk be diversified away by investing in both CHEMICAL INDUSTRIES and New China 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 CHEMICAL INDUSTRIES and New China into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CHEMICAL INDUSTRIES and New China Life, you can compare the effects of market volatilities on CHEMICAL INDUSTRIES and New China 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 CHEMICAL INDUSTRIES with a short position of New China. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHEMICAL INDUSTRIES and New China.

Diversification Opportunities for CHEMICAL INDUSTRIES and New China

0.0

Correlation Coefficient

CHEMICAL INDUSTRIES  New China

Pay attention - limited upside

The 3 months correlation between CHEMICAL and New is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding CHEMICAL INDUSTRIES and New China Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New China Life and CHEMICAL INDUSTRIES 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 CHEMICAL INDUSTRIES are associated (or correlated) with New China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New China Life has no effect on the direction of CHEMICAL INDUSTRIES i.e., CHEMICAL INDUSTRIES and New China go up and down completely randomly.

Pair Corralation between CHEMICAL INDUSTRIES and New China

Assuming the 90 days trading horizon CHEMICAL INDUSTRIES is expected to generate 40.19 times less return on investment than New China. But when comparing it to its historical volatility, CHEMICAL INDUSTRIES is 23.46 times less risky than New China. It trades about 0.06 of its potential returns per unit of risk. New China Life is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  66.00  in New China Life on October 23, 2024 and sell it today you would earn a total of  230.00  from holding New China Life or generate 348.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

CHEMICAL INDUSTRIES  vs.  New China Life

CHEMICAL INDUSTRIES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHEMICAL INDUSTRIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, CHEMICAL INDUSTRIES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

New China Life

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New China Life are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, New China exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CHEMICAL INDUSTRIES and New China

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

The idea behind CHEMICAL INDUSTRIES and New China Life 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.