Correlation Between HeBei Jinniu and Shandong Rike

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

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

Diversification Opportunities for HeBei Jinniu and Shandong Rike

0.49

Correlation Coefficient

HeBei Jinniu  Shandong Rike

Very weak diversification

The 3 months correlation between HeBei and Shandong is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding HeBei Jinniu Chemical and Shandong Rike Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Rike Chemical and HeBei Jinniu 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 HeBei Jinniu Chemical are associated (or correlated) with Shandong Rike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Rike Chemical has no effect on the direction of HeBei Jinniu i.e., HeBei Jinniu and Shandong Rike go up and down completely randomly.

Pair Corralation between HeBei Jinniu and Shandong Rike

Assuming the 90 days trading horizon HeBei Jinniu is expected to generate 1.17 times less return on investment than Shandong Rike. But when comparing it to its historical volatility, HeBei Jinniu Chemical is 1.97 times less risky than Shandong Rike. It trades about 0.15 of its potential returns per unit of risk. Shandong Rike Chemical is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  559.00  in Shandong Rike Chemical on December 26, 2024 and sell it today you would earn a total of  115.00  from holding Shandong Rike Chemical or generate 20.57% return on investment over 90 days.

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

HeBei Jinniu Chemical  vs.  Shandong Rike Chemical

HeBei Jinniu Chemical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HeBei Jinniu Chemical are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HeBei Jinniu sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Rike Chemical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Rike Chemical are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Rike sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HeBei Jinniu and Shandong Rike

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

The idea behind HeBei Jinniu Chemical and Shandong Rike 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.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.