Correlation Between Weichai Power and Nordson

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

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

Diversification Opportunities for Weichai Power and Nordson

-0.15

Correlation Coefficient

Weichai Power  Nordson

Good diversification

The 3 months correlation between Weichai and Nordson is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Weichai Power Co and Nordson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordson and Weichai Power 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 Weichai Power Co are associated (or correlated) with Nordson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordson has no effect on the direction of Weichai Power i.e., Weichai Power and Nordson go up and down completely randomly.

Pair Corralation between Weichai Power and Nordson

If you would invest  24,756  in Nordson on September 5, 2024 and sell it today you would earn a total of  1,088  from holding Nordson or generate 4.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	4.55%
Values	Daily Returns

Weichai Power Co  vs.  Nordson

Weichai Power

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Weichai Power Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile fundamental indicators, Weichai Power reported solid returns over the last few months and may actually be approaching a breakup point.

Nordson

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nordson are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Nordson is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Weichai Power and Nordson

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

The idea behind Weichai Power Co and Nordson 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 Anywhere module to track or share privately all of your investments from the convenience of any device.