Correlation Between Shandong Ruifeng and Shanghai Yaoji

Can any of the company-specific risk be diversified away by investing in both Shandong Ruifeng and Shanghai Yaoji 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 Ruifeng and Shanghai Yaoji into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shandong Ruifeng Chemical and Shanghai Yaoji Playing, you can compare the effects of market volatilities on Shandong Ruifeng and Shanghai Yaoji 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 Ruifeng with a short position of Shanghai Yaoji. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shandong Ruifeng and Shanghai Yaoji.

Diversification Opportunities for Shandong Ruifeng and Shanghai Yaoji

0.31

Correlation Coefficient

Shandong Ruifeng  Shanghai Yaoji

Weak diversification

The 3 months correlation between Shandong and Shanghai is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Ruifeng Chemical and Shanghai Yaoji Playing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Yaoji Playing and Shandong Ruifeng 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 Ruifeng Chemical are associated (or correlated) with Shanghai Yaoji. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Yaoji Playing has no effect on the direction of Shandong Ruifeng i.e., Shandong Ruifeng and Shanghai Yaoji go up and down completely randomly.

Pair Corralation between Shandong Ruifeng and Shanghai Yaoji

Assuming the 90 days trading horizon Shandong Ruifeng Chemical is expected to generate 0.68 times more return on investment than Shanghai Yaoji. However, Shandong Ruifeng Chemical is 1.46 times less risky than Shanghai Yaoji. It trades about -0.03 of its potential returns per unit of risk. Shanghai Yaoji Playing is currently generating about -0.07 per unit of risk. If you would invest  1,108  in Shandong Ruifeng Chemical on December 1, 2024 and sell it today you would lose (56.00) from holding Shandong Ruifeng Chemical or give up 5.05% of portfolio value over 90 days.

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

Shandong Ruifeng Chemical  vs.  Shanghai Yaoji Playing

Shandong Ruifeng Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shandong Ruifeng Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shandong Ruifeng is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shanghai Yaoji Playing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shanghai Yaoji Playing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Shandong Ruifeng and Shanghai Yaoji

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

The idea behind Shandong Ruifeng Chemical and Shanghai Yaoji Playing 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.