Correlation Between Yingde Greatchem and Hangzhou Zhongya

Can any of the company-specific risk be diversified away by investing in both Yingde Greatchem and Hangzhou Zhongya 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 Yingde Greatchem and Hangzhou Zhongya into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Yingde Greatchem Chemicals and Hangzhou Zhongya Machinery, you can compare the effects of market volatilities on Yingde Greatchem and Hangzhou Zhongya 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 Yingde Greatchem with a short position of Hangzhou Zhongya. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yingde Greatchem and Hangzhou Zhongya.

Diversification Opportunities for Yingde Greatchem and Hangzhou Zhongya

0.96

Correlation Coefficient

Yingde Greatchem  Hangzhou Zhongya

Almost no diversification

The 3 months correlation between Yingde and Hangzhou is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Yingde Greatchem Chemicals and Hangzhou Zhongya Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Zhongya Mac and Yingde Greatchem 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 Yingde Greatchem Chemicals are associated (or correlated) with Hangzhou Zhongya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Zhongya Mac has no effect on the direction of Yingde Greatchem i.e., Yingde Greatchem and Hangzhou Zhongya go up and down completely randomly.

Pair Corralation between Yingde Greatchem and Hangzhou Zhongya

Assuming the 90 days trading horizon Yingde Greatchem Chemicals is expected to under-perform the Hangzhou Zhongya. But the stock apears to be less risky and, when comparing its historical volatility, Yingde Greatchem Chemicals is 1.33 times less risky than Hangzhou Zhongya. The stock trades about -0.16 of its potential returns per unit of risk. The Hangzhou Zhongya Machinery is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  740.00  in Hangzhou Zhongya Machinery on September 28, 2024 and sell it today you would lose (28.00) from holding Hangzhou Zhongya Machinery or give up 3.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Yingde Greatchem Chemicals  vs.  Hangzhou Zhongya Machinery

Yingde Greatchem Che

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yingde Greatchem Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Yingde Greatchem is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hangzhou Zhongya Mac

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hangzhou Zhongya Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hangzhou Zhongya is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Yingde Greatchem and Hangzhou Zhongya

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

The idea behind Yingde Greatchem Chemicals and Hangzhou Zhongya 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.