Correlation Between ZongTai Real and Ruentex Engineering

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

By analyzing existing cross correlation between ZongTai Real Estate and Ruentex Engineering Construction, you can compare the effects of market volatilities on ZongTai Real and Ruentex Engineering 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 ZongTai Real with a short position of Ruentex Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of ZongTai Real and Ruentex Engineering.

Diversification Opportunities for ZongTai Real and Ruentex Engineering

0.81

Correlation Coefficient

ZongTai Real  Ruentex Engineering

Very poor diversification

The 3 months correlation between ZongTai and Ruentex is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding ZongTai Real Estate and Ruentex Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ruentex Engineering and ZongTai Real 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 ZongTai Real Estate are associated (or correlated) with Ruentex Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ruentex Engineering has no effect on the direction of ZongTai Real i.e., ZongTai Real and Ruentex Engineering go up and down completely randomly.

Pair Corralation between ZongTai Real and Ruentex Engineering

Assuming the 90 days trading horizon ZongTai Real Estate is expected to under-perform the Ruentex Engineering. In addition to that, ZongTai Real is 1.15 times more volatile than Ruentex Engineering Construction. It trades about -0.02 of its total potential returns per unit of risk. Ruentex Engineering Construction is currently generating about 0.01 per unit of volatility. If you would invest  14,500  in Ruentex Engineering Construction on September 4, 2024 and sell it today you would earn a total of  50.00  from holding Ruentex Engineering Construction or generate 0.34% return on investment over 90 days.

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

ZongTai Real Estate  vs.  Ruentex Engineering Constructi

ZongTai Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ZongTai Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ZongTai Real is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Ruentex Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ruentex Engineering Construction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Ruentex Engineering is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with ZongTai Real and Ruentex Engineering

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

The idea behind ZongTai Real Estate and Ruentex Engineering Construction 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.