Correlation Between Tonghua Grape and Offshore Oil

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

By analyzing existing cross correlation between Tonghua Grape Wine and Offshore Oil Engineering, you can compare the effects of market volatilities on Tonghua Grape and Offshore 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 Tonghua Grape with a short position of Offshore Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tonghua Grape and Offshore Oil.

Diversification Opportunities for Tonghua Grape and Offshore Oil

0.25

Correlation Coefficient

Tonghua Grape  Offshore Oil

Modest diversification

The 3 months correlation between Tonghua and Offshore is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Tonghua Grape Wine and Offshore Oil Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Offshore Oil Engineering and Tonghua Grape 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 Tonghua Grape Wine are associated (or correlated) with Offshore Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Offshore Oil Engineering has no effect on the direction of Tonghua Grape i.e., Tonghua Grape and Offshore Oil go up and down completely randomly.

Pair Corralation between Tonghua Grape and Offshore Oil

Assuming the 90 days trading horizon Tonghua Grape Wine is expected to under-perform the Offshore Oil. In addition to that, Tonghua Grape is 1.55 times more volatile than Offshore Oil Engineering. It trades about -0.33 of its total potential returns per unit of risk. Offshore Oil Engineering is currently generating about -0.03 per unit of volatility. If you would invest  541.00  in Offshore Oil Engineering on October 24, 2024 and sell it today you would lose (6.00) from holding Offshore Oil Engineering or give up 1.11% of portfolio value over 90 days.

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

Tonghua Grape Wine  vs.  Offshore Oil Engineering

Tonghua Grape Wine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tonghua Grape Wine has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Tonghua Grape is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Offshore Oil Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Offshore Oil Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Offshore Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tonghua Grape and Offshore Oil

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

The idea behind Tonghua Grape Wine and Offshore Oil Engineering 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.