Correlation Between Shandong Ruifeng and Guangdong Tianhe

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

Diversification Opportunities for Shandong Ruifeng and Guangdong Tianhe

0.46

Correlation Coefficient

Shandong Ruifeng  Guangdong Tianhe

Very weak diversification

The 3 months correlation between Shandong and Guangdong is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Ruifeng Chemical and Guangdong Tianhe Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Tianhe Agr 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 Guangdong Tianhe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Tianhe Agr has no effect on the direction of Shandong Ruifeng i.e., Shandong Ruifeng and Guangdong Tianhe go up and down completely randomly.

Pair Corralation between Shandong Ruifeng and Guangdong Tianhe

Assuming the 90 days trading horizon Shandong Ruifeng Chemical is expected to under-perform the Guangdong Tianhe. But the stock apears to be less risky and, when comparing its historical volatility, Shandong Ruifeng Chemical is 1.46 times less risky than Guangdong Tianhe. The stock trades about -0.25 of its potential returns per unit of risk. The Guangdong Tianhe Agricultural is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  620.00  in Guangdong Tianhe Agricultural on September 23, 2024 and sell it today you would earn a total of  120.00  from holding Guangdong Tianhe Agricultural or generate 19.35% return on investment over 90 days.

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

Shandong Ruifeng Chemical  vs.  Guangdong Tianhe Agricultural

Shandong Ruifeng Chemical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Ruifeng Chemical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Ruifeng sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangdong Tianhe Agr

Risk-Adjusted Performance

13 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Tianhe Agricultural are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Tianhe sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shandong Ruifeng and Guangdong Tianhe

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

The idea behind Shandong Ruifeng Chemical and Guangdong Tianhe Agricultural 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.