Correlation Between Maoming Petro and Shandong Sino

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

By analyzing existing cross correlation between Maoming Petro Chemical Shihua and Shandong Sino Agri United, you can compare the effects of market volatilities on Maoming Petro and Shandong Sino 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 Maoming Petro with a short position of Shandong Sino. Check out your portfolio center. Please also check ongoing floating volatility patterns of Maoming Petro and Shandong Sino.

Diversification Opportunities for Maoming Petro and Shandong Sino

0.87

Correlation Coefficient

Maoming Petro  Shandong Sino

Very poor diversification

The 3 months correlation between Maoming and Shandong is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Maoming Petro Chemical Shihua and Shandong Sino Agri United in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Sino Agri and Maoming Petro 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 Maoming Petro Chemical Shihua are associated (or correlated) with Shandong Sino. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Sino Agri has no effect on the direction of Maoming Petro i.e., Maoming Petro and Shandong Sino go up and down completely randomly.

Pair Corralation between Maoming Petro and Shandong Sino

Assuming the 90 days trading horizon Maoming Petro is expected to generate 1.72 times less return on investment than Shandong Sino. But when comparing it to its historical volatility, Maoming Petro Chemical Shihua is 1.55 times less risky than Shandong Sino. It trades about 0.18 of its potential returns per unit of risk. Shandong Sino Agri United is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,155  in Shandong Sino Agri United on September 5, 2024 and sell it today you would earn a total of  653.00  from holding Shandong Sino Agri United or generate 56.54% return on investment over 90 days.

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

Maoming Petro Chemical Shihua  vs.  Shandong Sino Agri United

Maoming Petro Chemical

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Maoming Petro Chemical Shihua are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Maoming Petro sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Sino Agri

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Sino Agri United are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Sino sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Maoming Petro and Shandong Sino

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

The idea behind Maoming Petro Chemical Shihua and Shandong Sino Agri United 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.