Correlation Between Shandong Rike and Guangdong Zhongsheng

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

Diversification Opportunities for Shandong Rike and Guangdong Zhongsheng

-0.41

Correlation Coefficient

Shandong Rike  Guangdong Zhongsheng

Very good diversification

The 3 months correlation between Shandong and Guangdong is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Rike Chemical and Guangdong Zhongsheng Pharmaceu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Zhongsheng 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 Guangdong Zhongsheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Zhongsheng has no effect on the direction of Shandong Rike i.e., Shandong Rike and Guangdong Zhongsheng go up and down completely randomly.

Pair Corralation between Shandong Rike and Guangdong Zhongsheng

Assuming the 90 days trading horizon Shandong Rike Chemical is expected to generate 2.53 times more return on investment than Guangdong Zhongsheng. However, Shandong Rike is 2.53 times more volatile than Guangdong Zhongsheng Pharmaceutical. It trades about 0.08 of its potential returns per unit of risk. Guangdong Zhongsheng Pharmaceutical is currently generating about -0.07 per unit of risk. If you would invest  575.00  in Shandong Rike Chemical on December 27, 2024 and sell it today you would earn a total of  111.00  from holding Shandong Rike Chemical or generate 19.3% return on investment over 90 days.

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

Shandong Rike Chemical  vs.  Guangdong Zhongsheng Pharmaceu

Shandong Rike Chemical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Rike Chemical are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Rike sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangdong Zhongsheng

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guangdong Zhongsheng Pharmaceutical 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 Guangdong Zhongsheng

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

The idea behind Shandong Rike Chemical and Guangdong Zhongsheng Pharmaceutical 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.