Correlation Between China Petrochemical and Ton Yi

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

By analyzing existing cross correlation between China Petrochemical Development and Ton Yi Industrial, you can compare the effects of market volatilities on China Petrochemical and Ton Yi 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 China Petrochemical with a short position of Ton Yi. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Petrochemical and Ton Yi.

Diversification Opportunities for China Petrochemical and Ton Yi

0.65

Correlation Coefficient

China Petrochemical  Ton Yi

Poor diversification

The 3 months correlation between China and Ton is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding China Petrochemical Developmen and Ton Yi Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ton Yi Industrial and China 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 China Petrochemical Development are associated (or correlated) with Ton Yi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ton Yi Industrial has no effect on the direction of China Petrochemical i.e., China Petrochemical and Ton Yi go up and down completely randomly.

Pair Corralation between China Petrochemical and Ton Yi

Assuming the 90 days trading horizon China Petrochemical is expected to generate 5.29 times less return on investment than Ton Yi. In addition to that, China Petrochemical is 1.62 times more volatile than Ton Yi Industrial. It trades about 0.03 of its total potential returns per unit of risk. Ton Yi Industrial is currently generating about 0.29 per unit of volatility. If you would invest  1,510  in Ton Yi Industrial on December 26, 2024 and sell it today you would earn a total of  260.00  from holding Ton Yi Industrial or generate 17.22% return on investment over 90 days.

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

China Petrochemical Developmen  vs.  Ton Yi Industrial

China Petrochemical

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Petrochemical Development are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, China Petrochemical is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Ton Yi Industrial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ton Yi Industrial are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Ton Yi showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Petrochemical and Ton Yi

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

The idea behind China Petrochemical Development and Ton Yi Industrial 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.