Correlation Between Shandong Ruifeng and Shenzhen Shenbao

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

Diversification Opportunities for Shandong Ruifeng and Shenzhen Shenbao

0.26

Correlation Coefficient

Shandong Ruifeng  Shenzhen Shenbao

Modest diversification

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

Pair Corralation between Shandong Ruifeng and Shenzhen Shenbao

Assuming the 90 days trading horizon Shandong Ruifeng Chemical is expected to generate 3.74 times more return on investment than Shenzhen Shenbao. However, Shandong Ruifeng is 3.74 times more volatile than Shenzhen Shenbao Industrial. It trades about 0.03 of its potential returns per unit of risk. Shenzhen Shenbao Industrial is currently generating about -0.09 per unit of risk. If you would invest  999.00  in Shandong Ruifeng Chemical on December 27, 2024 and sell it today you would earn a total of  26.00  from holding Shandong Ruifeng Chemical or generate 2.6% return on investment over 90 days.

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

Shandong Ruifeng Chemical  vs.  Shenzhen Shenbao Industrial

Shandong Ruifeng Chemical

Risk-Adjusted Performance

Weak

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

Shenzhen Shenbao Ind

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenzhen Shenbao Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shenzhen Shenbao 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 Ruifeng and Shenzhen Shenbao

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

The idea behind Shandong Ruifeng Chemical and Shenzhen Shenbao Industrial 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.