Correlation Between Shenyang Chemical and Yangmei Chemical

Can any of the company-specific risk be diversified away by investing in both Shenyang Chemical and Yangmei 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 Shenyang Chemical and Yangmei Chemical 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 Yangmei Chemical Co, you can compare the effects of market volatilities on Shenyang Chemical and Yangmei 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 Shenyang Chemical with a short position of Yangmei Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shenyang Chemical and Yangmei Chemical.

Diversification Opportunities for Shenyang Chemical and Yangmei Chemical

0.93

Correlation Coefficient

Shenyang Chemical  Yangmei Chemical

Almost no diversification

The 3 months correlation between Shenyang and Yangmei is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Shenyang Chemical Industry and Yangmei Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yangmei Chemical 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 Yangmei Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yangmei Chemical has no effect on the direction of Shenyang Chemical i.e., Shenyang Chemical and Yangmei Chemical go up and down completely randomly.

Pair Corralation between Shenyang Chemical and Yangmei Chemical

Assuming the 90 days trading horizon Shenyang Chemical is expected to generate 1.31 times less return on investment than Yangmei Chemical. But when comparing it to its historical volatility, Shenyang Chemical Industry is 1.24 times less risky than Yangmei Chemical. It trades about 0.22 of its potential returns per unit of risk. Yangmei Chemical Co is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  154.00  in Yangmei Chemical Co on September 4, 2024 and sell it today you would earn a total of  97.00  from holding Yangmei Chemical Co or generate 62.99% 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.  Yangmei Chemical Co

Shenyang Chemical

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenyang Chemical Industry are ranked lower than 17 (%) 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.

Yangmei Chemical

Risk-Adjusted Performance

18 of 100

Solid

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

Pair Trading with Shenyang Chemical and Yangmei Chemical

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

The idea behind Shenyang Chemical Industry and Yangmei Chemical Co 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.