Correlation Between Rongsheng Petrochemical and Liaoning Dingjide

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

Diversification Opportunities for Rongsheng Petrochemical and Liaoning Dingjide

-0.11

Correlation Coefficient

Rongsheng Petrochemical  Liaoning Dingjide

Good diversification

The 3 months correlation between Rongsheng and Liaoning is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Rongsheng Petrochemical Co and Liaoning Dingjide Petrochemica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liaoning Dingjide 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 Liaoning Dingjide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liaoning Dingjide has no effect on the direction of Rongsheng Petrochemical i.e., Rongsheng Petrochemical and Liaoning Dingjide go up and down completely randomly.

Pair Corralation between Rongsheng Petrochemical and Liaoning Dingjide

Assuming the 90 days trading horizon Rongsheng Petrochemical Co is expected to generate 0.67 times more return on investment than Liaoning Dingjide. However, Rongsheng Petrochemical Co is 1.5 times less risky than Liaoning Dingjide. It trades about -0.03 of its potential returns per unit of risk. Liaoning Dingjide Petrochemical is currently generating about -0.02 per unit of risk. If you would invest  1,224  in Rongsheng Petrochemical Co on October 13, 2024 and sell it today you would lose (373.00) from holding Rongsheng Petrochemical Co or give up 30.47% of portfolio value over 90 days.

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

Rongsheng Petrochemical Co  vs.  Liaoning Dingjide Petrochemica

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Liaoning Dingjide

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Dingjide Petrochemical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liaoning Dingjide sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rongsheng Petrochemical and Liaoning Dingjide

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

The idea behind Rongsheng Petrochemical Co and Liaoning Dingjide Petrochemical 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.