Correlation Between DingZing Advanced and China Petrochemical

Can any of the company-specific risk be diversified away by investing in both DingZing Advanced and China Petrochemical 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 DingZing Advanced and China Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DingZing Advanced Materials and China Petrochemical Development, you can compare the effects of market volatilities on DingZing Advanced and China Petrochemical 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 DingZing Advanced with a short position of China Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of DingZing Advanced and China Petrochemical.

Diversification Opportunities for DingZing Advanced and China Petrochemical

0.78

Correlation Coefficient

DingZing Advanced  China Petrochemical

Poor diversification

The 3 months correlation between DingZing and China is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding DingZing Advanced Materials and China Petrochemical Developmen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Petrochemical and DingZing Advanced 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 DingZing Advanced Materials are associated (or correlated) with China Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Petrochemical has no effect on the direction of DingZing Advanced i.e., DingZing Advanced and China Petrochemical go up and down completely randomly.

Pair Corralation between DingZing Advanced and China Petrochemical

Assuming the 90 days trading horizon DingZing Advanced Materials is expected to generate 1.83 times more return on investment than China Petrochemical. However, DingZing Advanced is 1.83 times more volatile than China Petrochemical Development. It trades about 0.03 of its potential returns per unit of risk. China Petrochemical Development is currently generating about -0.05 per unit of risk. If you would invest  13,098  in DingZing Advanced Materials on September 28, 2024 and sell it today you would earn a total of  1,302  from holding DingZing Advanced Materials or generate 9.94% return on investment over 90 days.

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

DingZing Advanced Materials  vs.  China Petrochemical Developmen

DingZing Advanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DingZing Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

China Petrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Petrochemical Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with DingZing Advanced and China Petrochemical

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

The idea behind DingZing Advanced Materials and China Petrochemical Development 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.