Correlation Between Rongsheng Petrochemical and Jilin Chemical

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

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

Diversification Opportunities for Rongsheng Petrochemical and Jilin Chemical

0.84

Correlation Coefficient

Rongsheng Petrochemical  Jilin Chemical

Very poor diversification

The 3 months correlation between Rongsheng and Jilin is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Rongsheng Petrochemical Co and Jilin Chemical Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jilin Chemical Fibre and Rongsheng 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 Rongsheng Petrochemical Co are associated (or correlated) with Jilin Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jilin Chemical Fibre has no effect on the direction of Rongsheng Petrochemical i.e., Rongsheng Petrochemical and Jilin Chemical go up and down completely randomly.

Pair Corralation between Rongsheng Petrochemical and Jilin Chemical

Assuming the 90 days trading horizon Rongsheng Petrochemical is expected to generate 2.49 times less return on investment than Jilin Chemical. But when comparing it to its historical volatility, Rongsheng Petrochemical Co is 1.45 times less risky than Jilin Chemical. It trades about 0.09 of its potential returns per unit of risk. Jilin Chemical Fibre is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  290.00  in Jilin Chemical Fibre on September 3, 2024 and sell it today you would earn a total of  83.00  from holding Jilin Chemical Fibre or generate 28.62% return on investment over 90 days.

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

Rongsheng Petrochemical Co  vs.  Jilin Chemical Fibre

Rongsheng Petrochemical

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rongsheng Petrochemical Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Rongsheng Petrochemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Jilin Chemical Fibre

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jilin Chemical Fibre are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jilin Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rongsheng Petrochemical and Jilin Chemical

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

The idea behind Rongsheng Petrochemical Co and Jilin Chemical Fibre 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.