Correlation Between Guizhou Chanhen and Sichuan Yahua

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

By analyzing existing cross correlation between Guizhou Chanhen Chemical and Sichuan Yahua Industrial, you can compare the effects of market volatilities on Guizhou Chanhen and Sichuan Yahua 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 Guizhou Chanhen with a short position of Sichuan Yahua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guizhou Chanhen and Sichuan Yahua.

Diversification Opportunities for Guizhou Chanhen and Sichuan Yahua

0.86

Correlation Coefficient

Guizhou Chanhen  Sichuan Yahua

Very poor diversification

The 3 months correlation between Guizhou and Sichuan is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Guizhou Chanhen Chemical and Sichuan Yahua Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Yahua Industrial and Guizhou Chanhen 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 Guizhou Chanhen Chemical are associated (or correlated) with Sichuan Yahua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Yahua Industrial has no effect on the direction of Guizhou Chanhen i.e., Guizhou Chanhen and Sichuan Yahua go up and down completely randomly.

Pair Corralation between Guizhou Chanhen and Sichuan Yahua

Assuming the 90 days trading horizon Guizhou Chanhen is expected to generate 1.48 times less return on investment than Sichuan Yahua. But when comparing it to its historical volatility, Guizhou Chanhen Chemical is 1.13 times less risky than Sichuan Yahua. It trades about 0.16 of its potential returns per unit of risk. Sichuan Yahua Industrial is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  823.00  in Sichuan Yahua Industrial on September 20, 2024 and sell it today you would earn a total of  427.00  from holding Sichuan Yahua Industrial or generate 51.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Guizhou Chanhen Chemical  vs.  Sichuan Yahua Industrial

Guizhou Chanhen Chemical

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guizhou Chanhen Chemical are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guizhou Chanhen sustained solid returns over the last few months and may actually be approaching a breakup point.

Sichuan Yahua Industrial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Yahua Industrial are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Yahua sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guizhou Chanhen and Sichuan Yahua

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

The idea behind Guizhou Chanhen Chemical and Sichuan Yahua Industrial 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.