Correlation Between Shandong Rike and Zoy Home

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

Diversification Opportunities for Shandong Rike and Zoy Home

0.75

Correlation Coefficient

Shandong Rike  Zoy Home

Poor diversification

The 3 months correlation between Shandong and Zoy is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Rike Chemical and Zoy Home Furnishing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zoy Home Furnishing 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 Zoy Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zoy Home Furnishing has no effect on the direction of Shandong Rike i.e., Shandong Rike and Zoy Home go up and down completely randomly.

Pair Corralation between Shandong Rike and Zoy Home

Assuming the 90 days trading horizon Shandong Rike is expected to generate 2.06 times less return on investment than Zoy Home. In addition to that, Shandong Rike is 1.03 times more volatile than Zoy Home Furnishing. It trades about 0.03 of its total potential returns per unit of risk. Zoy Home Furnishing is currently generating about 0.06 per unit of volatility. If you would invest  1,014  in Zoy Home Furnishing on October 24, 2024 and sell it today you would earn a total of  101.00  from holding Zoy Home Furnishing or generate 9.96% return on investment over 90 days.

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

Shandong Rike Chemical  vs.  Zoy Home Furnishing

Shandong Rike Chemical

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Rike Chemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Zoy Home Furnishing

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zoy Home Furnishing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zoy Home sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Rike and Zoy Home

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

The idea behind Shandong Rike Chemical and Zoy Home Furnishing 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.