Correlation Between Shenyang Chemical and Xinjiang Zhongtai

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

By analyzing existing cross correlation between Shenyang Chemical Industry and Xinjiang Zhongtai Chemical, you can compare the effects of market volatilities on Shenyang Chemical and Xinjiang Zhongtai 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 Shenyang Chemical with a short position of Xinjiang Zhongtai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenyang Chemical and Xinjiang Zhongtai.

Diversification Opportunities for Shenyang Chemical and Xinjiang Zhongtai

0.97

Correlation Coefficient

Shenyang Chemical  Xinjiang Zhongtai

Almost no diversification

The 3 months correlation between Shenyang and Xinjiang is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Shenyang Chemical Industry and Xinjiang Zhongtai Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Zhongtai and Shenyang Chemical 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 Shenyang Chemical Industry are associated (or correlated) with Xinjiang Zhongtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Zhongtai has no effect on the direction of Shenyang Chemical i.e., Shenyang Chemical and Xinjiang Zhongtai go up and down completely randomly.

Pair Corralation between Shenyang Chemical and Xinjiang Zhongtai

Assuming the 90 days trading horizon Shenyang Chemical Industry is expected to generate 1.53 times more return on investment than Xinjiang Zhongtai. However, Shenyang Chemical is 1.53 times more volatile than Xinjiang Zhongtai Chemical. It trades about 0.2 of its potential returns per unit of risk. Xinjiang Zhongtai Chemical is currently generating about 0.24 per unit of risk. If you would invest  265.00  in Shenyang Chemical Industry on September 3, 2024 and sell it today you would earn a total of  104.00  from holding Shenyang Chemical Industry or generate 39.25% return on investment over 90 days.

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

Shenyang Chemical Industry  vs.  Xinjiang Zhongtai Chemical

Shenyang Chemical

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Chemical Industry are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenyang Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Xinjiang Zhongtai

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Zhongtai Chemical are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Zhongtai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shenyang Chemical and Xinjiang Zhongtai

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

The idea behind Shenyang Chemical Industry and Xinjiang Zhongtai Chemical 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.