Correlation Between Hengyi Petrochemical and Rongsheng Petrochemical

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

By analyzing existing cross correlation between Hengyi Petrochemical Co and Rongsheng Petrochemical Co, you can compare the effects of market volatilities on Hengyi Petrochemical and Rongsheng 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 Hengyi Petrochemical with a short position of Rongsheng Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hengyi Petrochemical and Rongsheng Petrochemical.

Diversification Opportunities for Hengyi Petrochemical and Rongsheng Petrochemical

0.85

Correlation Coefficient

Hengyi Petrochemical  Rongsheng Petrochemical

Very poor diversification

The 3 months correlation between Hengyi and Rongsheng is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Hengyi Petrochemical Co and Rongsheng Petrochemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rongsheng Petrochemical and Hengyi Petrochemical 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 Hengyi Petrochemical Co are associated (or correlated) with Rongsheng Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rongsheng Petrochemical has no effect on the direction of Hengyi Petrochemical i.e., Hengyi Petrochemical and Rongsheng Petrochemical go up and down completely randomly.

Pair Corralation between Hengyi Petrochemical and Rongsheng Petrochemical

Assuming the 90 days trading horizon Hengyi Petrochemical Co is expected to generate 0.94 times more return on investment than Rongsheng Petrochemical. However, Hengyi Petrochemical Co is 1.06 times less risky than Rongsheng Petrochemical. It trades about -0.04 of its potential returns per unit of risk. Rongsheng Petrochemical Co is currently generating about -0.23 per unit of risk. If you would invest  618.00  in Hengyi Petrochemical Co on September 28, 2024 and sell it today you would lose (7.00) from holding Hengyi Petrochemical Co or give up 1.13% of portfolio value over 90 days.

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

Hengyi Petrochemical Co  vs.  Rongsheng Petrochemical Co

Hengyi Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hengyi Petrochemical Co 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Rongsheng Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rongsheng Petrochemical Co 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Hengyi Petrochemical and Rongsheng Petrochemical

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

The idea behind Hengyi Petrochemical Co and Rongsheng Petrochemical Co 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..