Correlation Between Aba Chemicals and Jiangxi Hengda

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

Diversification Opportunities for Aba Chemicals and Jiangxi Hengda

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Aba and Jiangxi is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Aba Chemicals Corp and Jiangxi Hengda Hi Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangxi Hengda Hi and Aba Chemicals 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 Aba Chemicals Corp are associated (or correlated) with Jiangxi Hengda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangxi Hengda Hi has no effect on the direction of Aba Chemicals i.e., Aba Chemicals and Jiangxi Hengda go up and down completely randomly.

Pair Corralation between Aba Chemicals and Jiangxi Hengda

Assuming the 90 days trading horizon Aba Chemicals Corp is expected to under-perform the Jiangxi Hengda. But the stock apears to be less risky and, when comparing its historical volatility, Aba Chemicals Corp is 1.79 times less risky than Jiangxi Hengda. The stock trades about -0.29 of its potential returns per unit of risk. The Jiangxi Hengda Hi Tech is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  579.00  in Jiangxi Hengda Hi Tech on October 30, 2024 and sell it today you would lose (88.00) from holding Jiangxi Hengda Hi Tech or give up 15.2% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Aba Chemicals Corp  vs.  Jiangxi Hengda Hi Tech

 Performance 
       Timeline  
Aba Chemicals Corp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Aba Chemicals Corp 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.
Jiangxi Hengda Hi 

Risk-Adjusted Performance

0 of 100

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

Aba Chemicals and Jiangxi Hengda Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Aba Chemicals and Jiangxi Hengda

The main advantage of trading using opposite Aba Chemicals and Jiangxi Hengda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aba Chemicals position performs unexpectedly, Jiangxi Hengda 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 Jiangxi Hengda will offset losses from the drop in Jiangxi Hengda's long position.
The idea behind Aba Chemicals Corp and Jiangxi Hengda Hi Tech 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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