Correlation Between XinJiang GuoTong and Shandong Rike

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

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

Diversification Opportunities for XinJiang GuoTong and Shandong Rike

0.6

Correlation Coefficient

XinJiang GuoTong  Shandong Rike

Poor diversification

The 3 months correlation between XinJiang and Shandong is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding XinJiang GuoTong Pipeline and Shandong Rike Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Rike Chemical and XinJiang GuoTong 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 XinJiang GuoTong Pipeline are associated (or correlated) with Shandong Rike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Rike Chemical has no effect on the direction of XinJiang GuoTong i.e., XinJiang GuoTong and Shandong Rike go up and down completely randomly.

Pair Corralation between XinJiang GuoTong and Shandong Rike

Assuming the 90 days trading horizon XinJiang GuoTong Pipeline is expected to under-perform the Shandong Rike. In addition to that, XinJiang GuoTong is 1.53 times more volatile than Shandong Rike Chemical. It trades about -0.11 of its total potential returns per unit of risk. Shandong Rike Chemical is currently generating about -0.04 per unit of volatility. If you would invest  637.00  in Shandong Rike Chemical on October 12, 2024 and sell it today you would lose (26.00) from holding Shandong Rike Chemical or give up 4.08% of portfolio value over 90 days.

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

XinJiang GuoTong Pipeline  vs.  Shandong Rike Chemical

XinJiang GuoTong Pipeline

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in XinJiang GuoTong Pipeline are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, XinJiang GuoTong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shandong Rike Chemical

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Rike Chemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Rike may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with XinJiang GuoTong and Shandong Rike

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

The idea behind XinJiang GuoTong Pipeline and Shandong Rike 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.