Correlation Between Shandong Rike and Inner Mongolia

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

Diversification Opportunities for Shandong Rike and Inner Mongolia

0.26

Correlation Coefficient

Shandong Rike  Inner Mongolia

Modest diversification

The 3 months correlation between Shandong and Inner is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Rike Chemical and Inner Mongolia BaoTou in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inner Mongolia BaoTou 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 Inner Mongolia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inner Mongolia BaoTou has no effect on the direction of Shandong Rike i.e., Shandong Rike and Inner Mongolia go up and down completely randomly.

Pair Corralation between Shandong Rike and Inner Mongolia

Assuming the 90 days trading horizon Shandong Rike Chemical is expected to generate 3.57 times more return on investment than Inner Mongolia. However, Shandong Rike is 3.57 times more volatile than Inner Mongolia BaoTou. It trades about 0.09 of its potential returns per unit of risk. Inner Mongolia BaoTou is currently generating about -0.01 per unit of risk. If you would invest  559.00  in Shandong Rike Chemical on December 26, 2024 and sell it today you would earn a total of  115.00  from holding Shandong Rike Chemical or generate 20.57% return on investment over 90 days.

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

Shandong Rike Chemical  vs.  Inner Mongolia BaoTou

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.

Inner Mongolia BaoTou

Risk-Adjusted Performance

Very Weak

Over the last 90 days Inner Mongolia BaoTou has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Inner Mongolia 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 Inner Mongolia

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

The idea behind Shandong Rike Chemical and Inner Mongolia BaoTou 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.