Correlation Between Shandong Rike and North Chemical

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

Diversification Opportunities for Shandong Rike and North Chemical

0.67

Correlation Coefficient

Shandong Rike  North Chemical

Poor diversification

The 3 months correlation between Shandong and North is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Rike Chemical and North Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Chemical Industries 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 North Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Chemical Industries has no effect on the direction of Shandong Rike i.e., Shandong Rike and North Chemical go up and down completely randomly.

Pair Corralation between Shandong Rike and North Chemical

Assuming the 90 days trading horizon Shandong Rike Chemical is expected to generate 1.02 times more return on investment than North Chemical. However, Shandong Rike is 1.02 times more volatile than North Chemical Industries. It trades about -0.11 of its potential returns per unit of risk. North Chemical Industries is currently generating about -0.39 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	Significant
Accuracy	100.0%
Values	Daily Returns

Shandong Rike Chemical  vs.  North Chemical Industries

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.

North Chemical Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North Chemical Industries 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.

Pair Trading with Shandong Rike and North Chemical

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

The idea behind Shandong Rike Chemical and North Chemical Industries 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.