Correlation Between Shandong Ruifeng and Inner Mongolia

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

Diversification Opportunities for Shandong Ruifeng and Inner Mongolia

0.83

Correlation Coefficient

Shandong Ruifeng  Inner Mongolia

Very poor diversification

The 3 months correlation between Shandong and Inner is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Shandong Ruifeng Chemical and Inner Mongolia Furui in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inner Mongolia Furui 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 Inner Mongolia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inner Mongolia Furui has no effect on the direction of Shandong Ruifeng i.e., Shandong Ruifeng and Inner Mongolia go up and down completely randomly.

Pair Corralation between Shandong Ruifeng and Inner Mongolia

Assuming the 90 days trading horizon Shandong Ruifeng Chemical is expected to generate 0.81 times more return on investment than Inner Mongolia. However, Shandong Ruifeng Chemical is 1.24 times less risky than Inner Mongolia. It trades about -0.03 of its potential returns per unit of risk. Inner Mongolia Furui 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	Strong
Accuracy	100.0%
Values	Daily Returns

Shandong Ruifeng Chemical  vs.  Inner Mongolia Furui

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.

Inner Mongolia Furui

Risk-Adjusted Performance

Very Weak

Over the last 90 days Inner Mongolia Furui 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 Inner Mongolia

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

The idea behind Shandong Ruifeng Chemical and Inner Mongolia Furui 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.