Correlation Between Liaoning Dingjide and Maoming Petro

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

By analyzing existing cross correlation between Liaoning Dingjide Petrochemical and Maoming Petro Chemical Shihua, you can compare the effects of market volatilities on Liaoning Dingjide and Maoming Petro 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 Liaoning Dingjide with a short position of Maoming Petro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liaoning Dingjide and Maoming Petro.

Diversification Opportunities for Liaoning Dingjide and Maoming Petro

0.84

Correlation Coefficient

Liaoning Dingjide  Maoming Petro

Very poor diversification

The 3 months correlation between Liaoning and Maoming is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Liaoning Dingjide Petrochemica and Maoming Petro Chemical Shihua in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maoming Petro Chemical and Liaoning Dingjide 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 Liaoning Dingjide Petrochemical are associated (or correlated) with Maoming Petro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maoming Petro Chemical has no effect on the direction of Liaoning Dingjide i.e., Liaoning Dingjide and Maoming Petro go up and down completely randomly.

Pair Corralation between Liaoning Dingjide and Maoming Petro

Assuming the 90 days trading horizon Liaoning Dingjide Petrochemical is expected to generate 1.06 times more return on investment than Maoming Petro. However, Liaoning Dingjide is 1.06 times more volatile than Maoming Petro Chemical Shihua. It trades about 0.15 of its potential returns per unit of risk. Maoming Petro Chemical Shihua is currently generating about 0.01 per unit of risk. If you would invest  2,728  in Liaoning Dingjide Petrochemical on September 30, 2024 and sell it today you would earn a total of  494.00  from holding Liaoning Dingjide Petrochemical or generate 18.11% return on investment over 90 days.

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

Liaoning Dingjide Petrochemica  vs.  Maoming Petro Chemical Shihua

Liaoning Dingjide

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liaoning Dingjide Petrochemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liaoning Dingjide may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Maoming Petro Chemical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Maoming Petro Chemical Shihua are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Maoming Petro may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Liaoning Dingjide and Maoming Petro

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

The idea behind Liaoning Dingjide Petrochemical and Maoming Petro Chemical Shihua 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.