Correlation Between Sichuan Fulin and Shandong Polymer

Can any of the company-specific risk be diversified away by investing in both Sichuan Fulin and Shandong Polymer 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 Sichuan Fulin and Shandong Polymer into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sichuan Fulin Transportation and Shandong Polymer Biochemicals, you can compare the effects of market volatilities on Sichuan Fulin and Shandong Polymer 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 Sichuan Fulin with a short position of Shandong Polymer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sichuan Fulin and Shandong Polymer.

Diversification Opportunities for Sichuan Fulin and Shandong Polymer

0.77

Correlation Coefficient

Sichuan Fulin  Shandong Polymer

Poor diversification

The 3 months correlation between Sichuan and Shandong is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Sichuan Fulin Transportation and Shandong Polymer Biochemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Polymer Bio and Sichuan Fulin 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 Sichuan Fulin Transportation are associated (or correlated) with Shandong Polymer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Polymer Bio has no effect on the direction of Sichuan Fulin i.e., Sichuan Fulin and Shandong Polymer go up and down completely randomly.

Pair Corralation between Sichuan Fulin and Shandong Polymer

Assuming the 90 days trading horizon Sichuan Fulin Transportation is expected to generate 0.86 times more return on investment than Shandong Polymer. However, Sichuan Fulin Transportation is 1.16 times less risky than Shandong Polymer. It trades about 0.22 of its potential returns per unit of risk. Shandong Polymer Biochemicals is currently generating about 0.09 per unit of risk. If you would invest  541.00  in Sichuan Fulin Transportation on September 26, 2024 and sell it today you would earn a total of  233.00  from holding Sichuan Fulin Transportation or generate 43.07% return on investment over 90 days.

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

Sichuan Fulin Transportation  vs.  Shandong Polymer Biochemicals

Sichuan Fulin Transp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Fulin Transportation are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Fulin sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Polymer Bio

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Polymer Biochemicals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Polymer sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sichuan Fulin and Shandong Polymer

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

The idea behind Sichuan Fulin Transportation and Shandong Polymer Biochemicals 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.