Correlation Between Shandong Rike and HeBei Jinniu

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

Diversification Opportunities for Shandong Rike and HeBei Jinniu

0.49

Correlation Coefficient

Shandong Rike  HeBei Jinniu

Very weak diversification

The 3 months correlation between Shandong and HeBei is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Rike Chemical and HeBei Jinniu Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HeBei Jinniu 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 HeBei Jinniu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HeBei Jinniu Chemical has no effect on the direction of Shandong Rike i.e., Shandong Rike and HeBei Jinniu go up and down completely randomly.

Pair Corralation between Shandong Rike and HeBei Jinniu

Assuming the 90 days trading horizon Shandong Rike Chemical is expected to generate 1.97 times more return on investment than HeBei Jinniu. However, Shandong Rike is 1.97 times more volatile than HeBei Jinniu Chemical. It trades about 0.09 of its potential returns per unit of risk. HeBei Jinniu Chemical is currently generating about 0.15 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	Weak
Accuracy	100.0%
Values	Daily Returns

Shandong Rike Chemical  vs.  HeBei Jinniu Chemical

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.

HeBei Jinniu Chemical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HeBei Jinniu Chemical are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HeBei Jinniu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Rike and HeBei Jinniu

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

The idea behind Shandong Rike Chemical and HeBei Jinniu Chemical 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.