Correlation Between Shandong Rike and Maoming Petro

Can any of the company-specific risk be diversified away by investing in both Shandong Rike and Maoming Petro 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 Shandong Rike and Maoming Petro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shandong Rike Chemical and Maoming Petro Chemical Shihua, you can compare the effects of market volatilities on Shandong Rike and Maoming Petro 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 Shandong Rike with a short position of Maoming Petro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Rike and Maoming Petro.

Diversification Opportunities for Shandong Rike and Maoming Petro

0.85

Correlation Coefficient

Shandong Rike  Maoming Petro

Very poor diversification

The 3 months correlation between Shandong and Maoming is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Rike Chemical and Maoming Petro Chemical Shihua in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maoming Petro Chemical and Shandong Rike 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 Shandong Rike Chemical are associated (or correlated) with Maoming Petro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maoming Petro Chemical has no effect on the direction of Shandong Rike i.e., Shandong Rike and Maoming Petro go up and down completely randomly.

Pair Corralation between Shandong Rike and Maoming Petro

Assuming the 90 days trading horizon Shandong Rike Chemical is expected to generate 1.21 times more return on investment than Maoming Petro. However, Shandong Rike is 1.21 times more volatile than Maoming Petro Chemical Shihua. It trades about -0.11 of its potential returns per unit of risk. Maoming Petro Chemical Shihua is currently generating about -0.27 per unit of risk. If you would invest  620.00  in Shandong Rike Chemical on October 7, 2024 and sell it today you would lose (50.00) from holding Shandong Rike Chemical or give up 8.06% of portfolio value over 90 days.

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

Shandong Rike Chemical  vs.  Maoming Petro Chemical Shihua

Shandong Rike Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Maoming Petro Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shandong Rike and Maoming Petro

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

The idea behind Shandong Rike Chemical and Maoming Petro Chemical Shihua 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.