Correlation Between SAIC and Shandong Ruifeng

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

By analyzing existing cross correlation between SAIC Motor Corp and Shandong Ruifeng Chemical, you can compare the effects of market volatilities on SAIC and Shandong Ruifeng 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 SAIC with a short position of Shandong Ruifeng. Check out your portfolio center. Please also check ongoing floating volatility patterns of SAIC and Shandong Ruifeng.

Diversification Opportunities for SAIC and Shandong Ruifeng

0.53

Correlation Coefficient

SAIC  Shandong Ruifeng

Very weak diversification

The 3 months correlation between SAIC and Shandong is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding SAIC Motor Corp and Shandong Ruifeng Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Ruifeng Chemical and SAIC 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 SAIC Motor Corp are associated (or correlated) with Shandong Ruifeng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Ruifeng Chemical has no effect on the direction of SAIC i.e., SAIC and Shandong Ruifeng go up and down completely randomly.

Pair Corralation between SAIC and Shandong Ruifeng

Assuming the 90 days trading horizon SAIC Motor Corp is expected to generate 1.14 times more return on investment than Shandong Ruifeng. However, SAIC is 1.14 times more volatile than Shandong Ruifeng Chemical. It trades about -0.08 of its potential returns per unit of risk. Shandong Ruifeng Chemical is currently generating about -0.31 per unit of risk. If you would invest  1,950  in SAIC Motor Corp on September 24, 2024 and sell it today you would lose (131.00) from holding SAIC Motor Corp or give up 6.72% of portfolio value over 90 days.

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

SAIC Motor Corp  vs.  Shandong Ruifeng Chemical

SAIC Motor Corp

Risk-Adjusted Performance

14 of 100

Good

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

Shandong Ruifeng Chemical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Ruifeng Chemical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Ruifeng sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SAIC and Shandong Ruifeng

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

The idea behind SAIC Motor Corp and Shandong Ruifeng Chemical 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.