Correlation Between Changshu Ruite and Hunan Oil

Can any of the company-specific risk be diversified away by investing in both Changshu Ruite and Hunan Oil 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 Changshu Ruite and Hunan Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Changshu Ruite Electric and Hunan Oil Pump, you can compare the effects of market volatilities on Changshu Ruite and Hunan Oil 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 Changshu Ruite with a short position of Hunan Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changshu Ruite and Hunan Oil.

Diversification Opportunities for Changshu Ruite and Hunan Oil

0.64

Correlation Coefficient

Changshu Ruite  Hunan Oil

Poor diversification

The 3 months correlation between Changshu and Hunan is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Changshu Ruite Electric and Hunan Oil Pump in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hunan Oil Pump and Changshu Ruite 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 Changshu Ruite Electric are associated (or correlated) with Hunan Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hunan Oil Pump has no effect on the direction of Changshu Ruite i.e., Changshu Ruite and Hunan Oil go up and down completely randomly.

Pair Corralation between Changshu Ruite and Hunan Oil

Assuming the 90 days trading horizon Changshu Ruite is expected to generate 5.47 times less return on investment than Hunan Oil. But when comparing it to its historical volatility, Changshu Ruite Electric is 2.67 times less risky than Hunan Oil. It trades about 0.09 of its potential returns per unit of risk. Hunan Oil Pump is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,125  in Hunan Oil Pump on December 27, 2024 and sell it today you would earn a total of  1,259  from holding Hunan Oil Pump or generate 59.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Changshu Ruite Electric  vs.  Hunan Oil Pump

Changshu Ruite Electric

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Changshu Ruite Electric are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changshu Ruite may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Hunan Oil Pump

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hunan Oil Pump are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hunan Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Changshu Ruite and Hunan Oil

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

The idea behind Changshu Ruite Electric and Hunan Oil Pump 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.