Correlation Between Dongjiang Environmental and Rongsheng Petrochemical

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

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

Diversification Opportunities for Dongjiang Environmental and Rongsheng Petrochemical

0.76

Correlation Coefficient

Dongjiang Environmental  Rongsheng Petrochemical

Poor diversification

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

Pair Corralation between Dongjiang Environmental and Rongsheng Petrochemical

Assuming the 90 days trading horizon Dongjiang Environmental Co is expected to generate 1.52 times more return on investment than Rongsheng Petrochemical. However, Dongjiang Environmental is 1.52 times more volatile than Rongsheng Petrochemical Co. It trades about -0.13 of its potential returns per unit of risk. Rongsheng Petrochemical Co is currently generating about -0.26 per unit of risk. If you would invest  487.00  in Dongjiang Environmental Co on September 20, 2024 and sell it today you would lose (33.00) from holding Dongjiang Environmental Co or give up 6.78% of portfolio value over 90 days.

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

Dongjiang Environmental Co  vs.  Rongsheng Petrochemical Co

Dongjiang Environmental

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dongjiang Environmental Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongjiang Environmental sustained solid returns over the last few months and may actually be approaching a breakup point.

Rongsheng Petrochemical

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rongsheng Petrochemical Co are ranked lower than 5 (%) 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.

Pair Trading with Dongjiang Environmental and Rongsheng Petrochemical

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

The idea behind Dongjiang Environmental Co and Rongsheng Petrochemical Co 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.