Correlation Between Shanghai Rongtai and Jilin Chemical

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

By analyzing existing cross correlation between Shanghai Rongtai Health and Jilin Chemical Fibre, you can compare the effects of market volatilities on Shanghai Rongtai and Jilin Chemical 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 Shanghai Rongtai with a short position of Jilin Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Rongtai and Jilin Chemical.

Diversification Opportunities for Shanghai Rongtai and Jilin Chemical

0.86

Correlation Coefficient

Shanghai Rongtai  Jilin Chemical

Very poor diversification

The 3 months correlation between Shanghai and Jilin is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Rongtai Health and Jilin Chemical Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jilin Chemical Fibre and Shanghai Rongtai 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 Shanghai Rongtai Health are associated (or correlated) with Jilin Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jilin Chemical Fibre has no effect on the direction of Shanghai Rongtai i.e., Shanghai Rongtai and Jilin Chemical go up and down completely randomly.

Pair Corralation between Shanghai Rongtai and Jilin Chemical

Assuming the 90 days trading horizon Shanghai Rongtai Health is expected to under-perform the Jilin Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Shanghai Rongtai Health is 1.11 times less risky than Jilin Chemical. The stock trades about -0.01 of its potential returns per unit of risk. The Jilin Chemical Fibre is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  482.00  in Jilin Chemical Fibre on September 26, 2024 and sell it today you would lose (102.00) from holding Jilin Chemical Fibre or give up 21.16% of portfolio value over 90 days.

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

Shanghai Rongtai Health  vs.  Jilin Chemical Fibre

Shanghai Rongtai Health

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rongtai Health are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Rongtai sustained solid returns over the last few months and may actually be approaching a breakup point.

Jilin Chemical Fibre

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jilin Chemical Fibre are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jilin Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Rongtai and Jilin Chemical

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

The idea behind Shanghai Rongtai Health and Jilin Chemical Fibre 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.