Correlation Between China Baoan and Shandong Ruifeng

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

By analyzing existing cross correlation between China Baoan Group and Shandong Ruifeng Chemical, you can compare the effects of market volatilities on China Baoan and Shandong Ruifeng 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 China Baoan with a short position of Shandong Ruifeng. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Baoan and Shandong Ruifeng.

Diversification Opportunities for China Baoan and Shandong Ruifeng

0.72

Correlation Coefficient

China Baoan  Shandong Ruifeng

Poor diversification

The 3 months correlation between China and Shandong is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding China Baoan Group and Shandong Ruifeng Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Ruifeng Chemical and China Baoan 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 China Baoan Group are associated (or correlated) with Shandong Ruifeng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Ruifeng Chemical has no effect on the direction of China Baoan i.e., China Baoan and Shandong Ruifeng go up and down completely randomly.

Pair Corralation between China Baoan and Shandong Ruifeng

Assuming the 90 days trading horizon China Baoan Group is expected to generate 0.47 times more return on investment than Shandong Ruifeng. However, China Baoan Group is 2.14 times less risky than Shandong Ruifeng. It trades about -0.51 of its potential returns per unit of risk. Shandong Ruifeng Chemical is currently generating about -0.34 per unit of risk. If you would invest  962.00  in China Baoan Group on October 15, 2024 and sell it today you would lose (122.00) from holding China Baoan Group or give up 12.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

China Baoan Group  vs.  Shandong Ruifeng Chemical

China Baoan Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Shandong Ruifeng Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shandong Ruifeng Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China Baoan and Shandong Ruifeng

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

The idea behind China Baoan Group and Shandong Ruifeng Chemical 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.