Correlation Between Caihong Display and Shandong Ruifeng

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

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

Diversification Opportunities for Caihong Display and Shandong Ruifeng

-0.39

Correlation Coefficient

Caihong Display  Shandong Ruifeng

Very good diversification

The 3 months correlation between Caihong and Shandong is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Caihong Display Devices 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 Caihong Display 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 Caihong Display Devices 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 Caihong Display i.e., Caihong Display and Shandong Ruifeng go up and down completely randomly.

Pair Corralation between Caihong Display and Shandong Ruifeng

Assuming the 90 days trading horizon Caihong Display Devices is expected to under-perform the Shandong Ruifeng. In addition to that, Caihong Display is 1.15 times more volatile than Shandong Ruifeng Chemical. It trades about -0.05 of its total potential returns per unit of risk. Shandong Ruifeng Chemical is currently generating about 0.05 per unit of volatility. If you would invest  979.00  in Shandong Ruifeng Chemical on December 28, 2024 and sell it today you would earn a total of  44.00  from holding Shandong Ruifeng Chemical or generate 4.49% return on investment over 90 days.

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

Caihong Display Devices  vs.  Shandong Ruifeng Chemical

Caihong Display Devices

Risk-Adjusted Performance

Very Weak

Over the last 90 days Caihong Display Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shandong Ruifeng Chemical

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Ruifeng Chemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shandong Ruifeng is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Caihong Display and Shandong Ruifeng

The main advantage of trading using opposite Caihong Display and Shandong Ruifeng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caihong Display 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 Caihong Display Devices 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.