Correlation Between San Fu and Nan Pao

Can any of the company-specific risk be diversified away by investing in both San Fu and Nan Pao 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 San Fu and Nan Pao into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between San Fu Chemical and Nan Pao Resins, you can compare the effects of market volatilities on San Fu and Nan Pao 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 San Fu with a short position of Nan Pao. Check out your portfolio center. Please also check ongoing floating volatility patterns of San Fu and Nan Pao.

Diversification Opportunities for San Fu and Nan Pao

0.13

Correlation Coefficient

San Fu  Nan Pao

Average diversification

The 3 months correlation between San and Nan is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding San Fu Chemical and Nan Pao Resins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nan Pao Resins and San Fu 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 San Fu Chemical are associated (or correlated) with Nan Pao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nan Pao Resins has no effect on the direction of San Fu i.e., San Fu and Nan Pao go up and down completely randomly.

Pair Corralation between San Fu and Nan Pao

Assuming the 90 days trading horizon San Fu is expected to generate 1.2 times less return on investment than Nan Pao. In addition to that, San Fu is 1.3 times more volatile than Nan Pao Resins. It trades about 0.06 of its total potential returns per unit of risk. Nan Pao Resins is currently generating about 0.1 per unit of volatility. If you would invest  30,000  in Nan Pao Resins on September 4, 2024 and sell it today you would earn a total of  3,150  from holding Nan Pao Resins or generate 10.5% return on investment over 90 days.

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

San Fu Chemical  vs.  Nan Pao Resins

San Fu Chemical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in San Fu Chemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, San Fu may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nan Pao Resins

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nan Pao Resins are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Nan Pao may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with San Fu and Nan Pao

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

The idea behind San Fu Chemical and Nan Pao Resins 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.