Correlation Between Wanhua Chemical and Shaanxi Beiyuan

Can any of the company-specific risk be diversified away by investing in both Wanhua Chemical and Shaanxi Beiyuan 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 Shaanxi Beiyuan 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 Shaanxi Beiyuan Chemical, you can compare the effects of market volatilities on Wanhua Chemical and Shaanxi Beiyuan 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 Shaanxi Beiyuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wanhua Chemical and Shaanxi Beiyuan.

Diversification Opportunities for Wanhua Chemical and Shaanxi Beiyuan

0.3

Correlation Coefficient

Wanhua Chemical  Shaanxi Beiyuan

Weak diversification

The 3 months correlation between Wanhua and Shaanxi is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and Shaanxi Beiyuan Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Beiyuan Chemical 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 Shaanxi Beiyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Beiyuan Chemical has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and Shaanxi Beiyuan go up and down completely randomly.

Pair Corralation between Wanhua Chemical and Shaanxi Beiyuan

Assuming the 90 days trading horizon Wanhua Chemical is expected to generate 4.6 times less return on investment than Shaanxi Beiyuan. In addition to that, Wanhua Chemical is 1.35 times more volatile than Shaanxi Beiyuan Chemical. It trades about 0.03 of its total potential returns per unit of risk. Shaanxi Beiyuan Chemical is currently generating about 0.19 per unit of volatility. If you would invest  366.00  in Shaanxi Beiyuan Chemical on September 17, 2024 and sell it today you would earn a total of  81.00  from holding Shaanxi Beiyuan Chemical or generate 22.13% return on investment over 90 days.

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

Wanhua Chemical Group  vs.  Shaanxi Beiyuan Chemical

Wanhua Chemical Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wanhua Chemical Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Wanhua Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shaanxi Beiyuan Chemical

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Beiyuan Chemical are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shaanxi Beiyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wanhua Chemical and Shaanxi Beiyuan

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

The idea behind Wanhua Chemical Group and Shaanxi Beiyuan Chemical 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.