Correlation Between Wanhua Chemical and GRIPM Advanced

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

Diversification Opportunities for Wanhua Chemical and GRIPM Advanced

0.35

Correlation Coefficient

Wanhua Chemical  GRIPM Advanced

Weak diversification

The 3 months correlation between Wanhua and GRIPM is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Wanhua Chemical Group and GRIPM Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GRIPM Advanced Materials 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 GRIPM Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GRIPM Advanced Materials has no effect on the direction of Wanhua Chemical i.e., Wanhua Chemical and GRIPM Advanced go up and down completely randomly.

Pair Corralation between Wanhua Chemical and GRIPM Advanced

Assuming the 90 days trading horizon Wanhua Chemical is expected to generate 10.92 times less return on investment than GRIPM Advanced. But when comparing it to its historical volatility, Wanhua Chemical Group is 1.5 times less risky than GRIPM Advanced. It trades about 0.02 of its potential returns per unit of risk. GRIPM Advanced Materials is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,579  in GRIPM Advanced Materials on September 18, 2024 and sell it today you would earn a total of  821.00  from holding GRIPM Advanced Materials or generate 31.83% 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.  GRIPM Advanced Materials

Wanhua Chemical Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wanhua Chemical Group are ranked lower than 1 (%) 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.

GRIPM Advanced Materials

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Wanhua Chemical and GRIPM Advanced

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

The idea behind Wanhua Chemical Group and GRIPM Advanced Materials 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.