Correlation Between Hengli Petrochemical and Sinocat Environmental

Can any of the company-specific risk be diversified away by investing in both Hengli Petrochemical and Sinocat Environmental 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 Hengli Petrochemical and Sinocat Environmental into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hengli Petrochemical Co and Sinocat Environmental Technology, you can compare the effects of market volatilities on Hengli Petrochemical and Sinocat Environmental 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 Hengli Petrochemical with a short position of Sinocat Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hengli Petrochemical and Sinocat Environmental.

Diversification Opportunities for Hengli Petrochemical and Sinocat Environmental

0.58

Correlation Coefficient

Hengli Petrochemical  Sinocat Environmental

Very weak diversification

The 3 months correlation between Hengli and Sinocat is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Hengli Petrochemical Co and Sinocat Environmental Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinocat Environmental and Hengli Petrochemical 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 Hengli Petrochemical Co are associated (or correlated) with Sinocat Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinocat Environmental has no effect on the direction of Hengli Petrochemical i.e., Hengli Petrochemical and Sinocat Environmental go up and down completely randomly.

Pair Corralation between Hengli Petrochemical and Sinocat Environmental

Assuming the 90 days trading horizon Hengli Petrochemical is expected to generate 1.05 times less return on investment than Sinocat Environmental. But when comparing it to its historical volatility, Hengli Petrochemical Co is 4.18 times less risky than Sinocat Environmental. It trades about 0.27 of its potential returns per unit of risk. Sinocat Environmental Technology is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,793  in Sinocat Environmental Technology on September 28, 2024 and sell it today you would earn a total of  85.00  from holding Sinocat Environmental Technology or generate 4.74% return on investment over 90 days.

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

Hengli Petrochemical Co  vs.  Sinocat Environmental Technolo

Hengli Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sinocat Environmental

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sinocat Environmental Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sinocat Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hengli Petrochemical and Sinocat Environmental

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

The idea behind Hengli Petrochemical Co and Sinocat Environmental Technology 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.