Correlation Between Basso Industry and China Petrochemical
Can any of the company-specific risk be diversified away by investing in both Basso Industry and China Petrochemical 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 Basso Industry and China Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basso Industry Corp and China Petrochemical Development, you can compare the effects of market volatilities on Basso Industry and China Petrochemical 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 Basso Industry with a short position of China Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basso Industry and China Petrochemical.
Diversification Opportunities for Basso Industry and China Petrochemical
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Basso and China is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Basso Industry Corp and China Petrochemical Developmen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Petrochemical and Basso Industry 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 Basso Industry Corp are associated (or correlated) with China Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Petrochemical has no effect on the direction of Basso Industry i.e., Basso Industry and China Petrochemical go up and down completely randomly.
Pair Corralation between Basso Industry and China Petrochemical
Assuming the 90 days trading horizon Basso Industry is expected to generate 2.18 times less return on investment than China Petrochemical. But when comparing it to its historical volatility, Basso Industry Corp is 2.18 times less risky than China Petrochemical. It trades about 0.44 of its potential returns per unit of risk. China Petrochemical Development is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest 737.00 in China Petrochemical Development on December 1, 2024 and sell it today you would earn a total of 99.00 from holding China Petrochemical Development or generate 13.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basso Industry Corp vs. China Petrochemical Developmen
Performance |
| Timeline |
| Basso Industry Corp |
| China Petrochemical |
Basso Industry and China Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basso Industry and China Petrochemical
The main advantage of trading using opposite Basso Industry and China Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basso Industry position performs unexpectedly, China Petrochemical 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 China Petrochemical will offset losses from the drop in China Petrochemical's long position.| Basso Industry vs. Cheng Shin Rubber | Basso Industry vs. Kung Long Batteries | Basso Industry vs. Pou Chen Corp | Basso Industry vs. China Steel Chemical |
| China Petrochemical vs. USI Corp | China Petrochemical vs. Grand Pacific Petrochemical | China Petrochemical vs. Taiwan Styrene Monomer | China Petrochemical vs. China Steel Corp |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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