Correlation Between Ton Yi and China Petrochemical

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

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

Diversification Opportunities for Ton Yi and China Petrochemical

0.65

Correlation Coefficient

Ton Yi  China Petrochemical

Poor diversification

The 3 months correlation between Ton and China is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Ton Yi Industrial and China Petrochemical Developmen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Petrochemical and Ton Yi 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 Ton Yi Industrial 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 Ton Yi i.e., Ton Yi and China Petrochemical go up and down completely randomly.

Pair Corralation between Ton Yi and China Petrochemical

Assuming the 90 days trading horizon Ton Yi Industrial is expected to generate 0.62 times more return on investment than China Petrochemical. However, Ton Yi Industrial is 1.62 times less risky than China Petrochemical. It trades about 0.29 of its potential returns per unit of risk. China Petrochemical Development is currently generating about 0.03 per unit of risk. If you would invest  1,510  in Ton Yi Industrial on December 26, 2024 and sell it today you would earn a total of  260.00  from holding Ton Yi Industrial or generate 17.22% return on investment over 90 days.

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

Ton Yi Industrial  vs.  China Petrochemical Developmen

Ton Yi Industrial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ton Yi Industrial are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Ton Yi showed solid returns over the last few months and may actually be approaching a breakup point.

China Petrochemical

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Petrochemical Development are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, China Petrochemical is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Ton Yi and China Petrochemical

The main advantage of trading using opposite Ton Yi and China Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ton Yi 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 Ton Yi Industrial 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .