Correlation Between Ruentex Development and Pan Asia

Can any of the company-specific risk be diversified away by investing in both Ruentex Development and Pan Asia 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 Ruentex Development and Pan Asia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ruentex Development Co and Pan Asia Chemical, you can compare the effects of market volatilities on Ruentex Development and Pan Asia 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 Ruentex Development with a short position of Pan Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ruentex Development and Pan Asia.

Diversification Opportunities for Ruentex Development and Pan Asia

0.71

Correlation Coefficient

Ruentex Development  Pan Asia

Poor diversification

The 3 months correlation between Ruentex and Pan is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Ruentex Development Co and Pan Asia Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan Asia Chemical and Ruentex Development 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 Ruentex Development Co are associated (or correlated) with Pan Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan Asia Chemical has no effect on the direction of Ruentex Development i.e., Ruentex Development and Pan Asia go up and down completely randomly.

Pair Corralation between Ruentex Development and Pan Asia

Assuming the 90 days trading horizon Ruentex Development Co is expected to generate 0.84 times more return on investment than Pan Asia. However, Ruentex Development Co is 1.2 times less risky than Pan Asia. It trades about -0.05 of its potential returns per unit of risk. Pan Asia Chemical is currently generating about -0.05 per unit of risk. If you would invest  4,720  in Ruentex Development Co on September 16, 2024 and sell it today you would lose (210.00) from holding Ruentex Development Co or give up 4.45% of portfolio value over 90 days.

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

Ruentex Development Co  vs.  Pan Asia Chemical

Ruentex Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ruentex Development Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Ruentex Development is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pan Asia Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pan Asia Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Pan Asia 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 Ruentex Development and Pan Asia

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

The idea behind Ruentex Development Co and Pan Asia 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.