Correlation Between Rongsheng Petrochemical and Nantong Jiangshan

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

Diversification Opportunities for Rongsheng Petrochemical and Nantong Jiangshan

0.76

Correlation Coefficient

Rongsheng Petrochemical  Nantong Jiangshan

Poor diversification

The 3 months correlation between Rongsheng and Nantong is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Rongsheng Petrochemical Co and Nantong Jiangshan Agrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nantong Jiangshan 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 Nantong Jiangshan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nantong Jiangshan has no effect on the direction of Rongsheng Petrochemical i.e., Rongsheng Petrochemical and Nantong Jiangshan go up and down completely randomly.

Pair Corralation between Rongsheng Petrochemical and Nantong Jiangshan

Assuming the 90 days trading horizon Rongsheng Petrochemical Co is expected to under-perform the Nantong Jiangshan. But the stock apears to be less risky and, when comparing its historical volatility, Rongsheng Petrochemical Co is 1.38 times less risky than Nantong Jiangshan. The stock trades about -0.04 of its potential returns per unit of risk. The Nantong Jiangshan Agrochemical is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,395  in Nantong Jiangshan Agrochemical on October 22, 2024 and sell it today you would earn a total of  35.00  from holding Nantong Jiangshan Agrochemical or generate 2.51% return on investment over 90 days.

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

Rongsheng Petrochemical Co  vs.  Nantong Jiangshan Agrochemical

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 somewhat strong basic indicators, Rongsheng Petrochemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nantong Jiangshan

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nantong Jiangshan Agrochemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nantong Jiangshan 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 Nantong Jiangshan

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

The idea behind Rongsheng Petrochemical Co and Nantong Jiangshan Agrochemical 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.