Correlation Between DR and Jiangsu Rongtai

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

By analyzing existing cross correlation between DR Limited and Jiangsu Rongtai Industry, you can compare the effects of market volatilities on DR and Jiangsu Rongtai 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 DR with a short position of Jiangsu Rongtai. Check out your portfolio center. Please also check ongoing floating volatility patterns of DR and Jiangsu Rongtai.

Diversification Opportunities for DR and Jiangsu Rongtai

0.73

Correlation Coefficient

DR  Jiangsu Rongtai

Poor diversification

The 3 months correlation between DR and Jiangsu is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding DR Limited and Jiangsu Rongtai Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Rongtai Industry and DR 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 DR Limited are associated (or correlated) with Jiangsu Rongtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Rongtai Industry has no effect on the direction of DR i.e., DR and Jiangsu Rongtai go up and down completely randomly.

Pair Corralation between DR and Jiangsu Rongtai

Assuming the 90 days trading horizon DR is expected to generate 1.94 times less return on investment than Jiangsu Rongtai. But when comparing it to its historical volatility, DR Limited is 1.25 times less risky than Jiangsu Rongtai. It trades about 0.12 of its potential returns per unit of risk. Jiangsu Rongtai Industry is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,397  in Jiangsu Rongtai Industry on December 25, 2024 and sell it today you would earn a total of  1,154  from holding Jiangsu Rongtai Industry or generate 48.14% return on investment over 90 days.

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

DR Limited  vs.  Jiangsu Rongtai Industry

DR Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DR Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, DR sustained solid returns over the last few months and may actually be approaching a breakup point.

Jiangsu Rongtai Industry

Risk-Adjusted Performance

Good

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

Pair Trading with DR and Jiangsu Rongtai

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

The idea behind DR Limited and Jiangsu Rongtai Industry 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.