Correlation Between Rongsheng Petrochemical and City Development

Can any of the company-specific risk be diversified away by investing in both Rongsheng Petrochemical and City Development 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 City Development 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 City Development Environment, you can compare the effects of market volatilities on Rongsheng Petrochemical and City Development 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 City Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rongsheng Petrochemical and City Development.

Diversification Opportunities for Rongsheng Petrochemical and City Development

0.5

Correlation Coefficient

Rongsheng Petrochemical  City Development

Very weak diversification

The 3 months correlation between Rongsheng and City is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Rongsheng Petrochemical Co and City Development Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Development Env 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 City Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Development Env has no effect on the direction of Rongsheng Petrochemical i.e., Rongsheng Petrochemical and City Development go up and down completely randomly.

Pair Corralation between Rongsheng Petrochemical and City Development

Assuming the 90 days trading horizon Rongsheng Petrochemical Co is expected to under-perform the City Development. But the stock apears to be less risky and, when comparing its historical volatility, Rongsheng Petrochemical Co is 1.12 times less risky than City Development. The stock trades about -0.03 of its potential returns per unit of risk. The City Development Environment is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,060  in City Development Environment on October 5, 2024 and sell it today you would earn a total of  215.00  from holding City Development Environment or generate 20.28% return on investment over 90 days.

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

Rongsheng Petrochemical Co  vs.  City Development Environment

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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

City Development Env

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Rongsheng Petrochemical and City Development

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

The idea behind Rongsheng Petrochemical Co and City Development Environment 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.