Correlation Between Dezhan HealthCare and Wanhua Chemical

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Can any of the company-specific risk be diversified away by investing in both Dezhan HealthCare and Wanhua Chemical 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 Dezhan HealthCare and Wanhua Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dezhan HealthCare Co and Wanhua Chemical Group, you can compare the effects of market volatilities on Dezhan HealthCare and Wanhua Chemical 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 Dezhan HealthCare with a short position of Wanhua Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dezhan HealthCare and Wanhua Chemical.

Diversification Opportunities for Dezhan HealthCare and Wanhua Chemical

0.21
  Correlation Coefficient

Modest diversification

The 3 months correlation between Dezhan and Wanhua is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Dezhan HealthCare Co and Wanhua Chemical Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wanhua Chemical Group and Dezhan HealthCare 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 Dezhan HealthCare Co are associated (or correlated) with Wanhua Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wanhua Chemical Group has no effect on the direction of Dezhan HealthCare i.e., Dezhan HealthCare and Wanhua Chemical go up and down completely randomly.

Pair Corralation between Dezhan HealthCare and Wanhua Chemical

Assuming the 90 days trading horizon Dezhan HealthCare Co is expected to generate 1.8 times more return on investment than Wanhua Chemical. However, Dezhan HealthCare is 1.8 times more volatile than Wanhua Chemical Group. It trades about -0.05 of its potential returns per unit of risk. Wanhua Chemical Group is currently generating about -0.12 per unit of risk. If you would invest  307.00  in Dezhan HealthCare Co on November 6, 2024 and sell it today you would lose (7.00) from holding Dezhan HealthCare Co or give up 2.28% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Dezhan HealthCare Co  vs.  Wanhua Chemical Group

 Performance 
       Timeline  
Dezhan HealthCare 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Dezhan HealthCare Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Dezhan HealthCare is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Wanhua Chemical Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Wanhua Chemical Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Dezhan HealthCare and Wanhua Chemical Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dezhan HealthCare and Wanhua Chemical

The main advantage of trading using opposite Dezhan HealthCare and Wanhua Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dezhan HealthCare position performs unexpectedly, Wanhua Chemical 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 Wanhua Chemical will offset losses from the drop in Wanhua Chemical's long position.
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The idea behind Dezhan HealthCare Co and Wanhua Chemical Group 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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