Correlation Between Shanghai Yanpu and Shandong Ruifeng

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

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

Diversification Opportunities for Shanghai Yanpu and Shandong Ruifeng

0.88

Correlation Coefficient

Shanghai Yanpu  Shandong Ruifeng

Very poor diversification

The 3 months correlation between Shanghai and Shandong is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Yanpu Metal 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 Shanghai Yanpu 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 Yanpu Metal 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 Shanghai Yanpu i.e., Shanghai Yanpu and Shandong Ruifeng go up and down completely randomly.

Pair Corralation between Shanghai Yanpu and Shandong Ruifeng

Assuming the 90 days trading horizon Shanghai Yanpu Metal is expected to generate 0.66 times more return on investment than Shandong Ruifeng. However, Shanghai Yanpu Metal is 1.51 times less risky than Shandong Ruifeng. It trades about 0.22 of its potential returns per unit of risk. Shandong Ruifeng Chemical is currently generating about 0.14 per unit of risk. If you would invest  2,629  in Shanghai Yanpu Metal on September 4, 2024 and sell it today you would earn a total of  1,307  from holding Shanghai Yanpu Metal or generate 49.71% return on investment over 90 days.

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

Shanghai Yanpu Metal  vs.  Shandong Ruifeng Chemical

Shanghai Yanpu Metal

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Yanpu Metal are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Yanpu sustained solid returns over the last few months and may actually be approaching a breakup point.

Shandong Ruifeng Chemical

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shandong Ruifeng Chemical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shandong Ruifeng sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Yanpu and Shandong Ruifeng

The main advantage of trading using opposite Shanghai Yanpu and Shandong Ruifeng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Yanpu 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 Shanghai Yanpu Metal 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.