Correlation Between Lianhe Chemical and Weichai Heavy

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

By analyzing existing cross correlation between Lianhe Chemical Technology and Weichai Heavy Machinery, you can compare the effects of market volatilities on Lianhe Chemical and Weichai Heavy 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 Lianhe Chemical with a short position of Weichai Heavy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lianhe Chemical and Weichai Heavy.

Diversification Opportunities for Lianhe Chemical and Weichai Heavy

0.79

Correlation Coefficient

Lianhe Chemical  Weichai Heavy

Poor diversification

The 3 months correlation between Lianhe and Weichai is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Lianhe Chemical Technology and Weichai Heavy Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weichai Heavy Machinery and Lianhe 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 Lianhe Chemical Technology are associated (or correlated) with Weichai Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weichai Heavy Machinery has no effect on the direction of Lianhe Chemical i.e., Lianhe Chemical and Weichai Heavy go up and down completely randomly.

Pair Corralation between Lianhe Chemical and Weichai Heavy

Assuming the 90 days trading horizon Lianhe Chemical Technology is expected to under-perform the Weichai Heavy. But the stock apears to be less risky and, when comparing its historical volatility, Lianhe Chemical Technology is 1.23 times less risky than Weichai Heavy. The stock trades about -0.08 of its potential returns per unit of risk. The Weichai Heavy Machinery is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  915.00  in Weichai Heavy Machinery on September 24, 2024 and sell it today you would earn a total of  394.00  from holding Weichai Heavy Machinery or generate 43.06% return on investment over 90 days.

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

Lianhe Chemical Technology  vs.  Weichai Heavy Machinery

Lianhe Chemical Tech

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lianhe Chemical Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lianhe Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Weichai Heavy Machinery

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Weichai Heavy Machinery are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Weichai Heavy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lianhe Chemical and Weichai Heavy

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

The idea behind Lianhe Chemical Technology and Weichai Heavy Machinery 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.