Correlation Between Wanhua Chemical and Chenzhou Jingui

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

By analyzing existing cross correlation between Wanhua Chemical Group and Chenzhou Jingui Silver, you can compare the effects of market volatilities on Wanhua Chemical and Chenzhou Jingui 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 Wanhua Chemical with a short position of Chenzhou Jingui. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wanhua Chemical and Chenzhou Jingui.

Diversification Opportunities for Wanhua Chemical and Chenzhou Jingui

0.52

Correlation Coefficient

Wanhua Chemical  Chenzhou Jingui

Very weak diversification

The 3 months correlation between Wanhua and Chenzhou is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and Chenzhou Jingui Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chenzhou Jingui Silver and Wanhua 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 Wanhua Chemical Group are associated (or correlated) with Chenzhou Jingui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chenzhou Jingui Silver has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and Chenzhou Jingui go up and down completely randomly.

Pair Corralation between Wanhua Chemical and Chenzhou Jingui

Assuming the 90 days trading horizon Wanhua Chemical is expected to generate 4.17 times less return on investment than Chenzhou Jingui. But when comparing it to its historical volatility, Wanhua Chemical Group is 1.29 times less risky than Chenzhou Jingui. It trades about 0.05 of its potential returns per unit of risk. Chenzhou Jingui Silver is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  285.00  in Chenzhou Jingui Silver on September 3, 2024 and sell it today you would earn a total of  79.00  from holding Chenzhou Jingui Silver or generate 27.72% return on investment over 90 days.

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

Wanhua Chemical Group  vs.  Chenzhou Jingui Silver

Wanhua Chemical Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wanhua Chemical Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wanhua Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Chenzhou Jingui Silver

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chenzhou Jingui Silver are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Chenzhou Jingui sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wanhua Chemical and Chenzhou Jingui

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

The idea behind Wanhua Chemical Group and Chenzhou Jingui Silver 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.

Check out your portfolio center.

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.