Correlation Between Rocket Internet and China Resources

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

By analyzing existing cross correlation between Rocket Internet SE and China Resources Gas, you can compare the effects of market volatilities on Rocket Internet and China Resources 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 Rocket Internet with a short position of China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rocket Internet and China Resources.

Diversification Opportunities for Rocket Internet and China Resources

0.2

Correlation Coefficient

Rocket Internet  China Resources

Modest diversification

The 3 months correlation between Rocket and China is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Rocket Internet SE and China Resources Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Gas and Rocket Internet 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 Rocket Internet SE are associated (or correlated) with China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Gas has no effect on the direction of Rocket Internet i.e., Rocket Internet and China Resources go up and down completely randomly.

Pair Corralation between Rocket Internet and China Resources

Assuming the 90 days trading horizon Rocket Internet SE is expected to generate 0.83 times more return on investment than China Resources. However, Rocket Internet SE is 1.21 times less risky than China Resources. It trades about 0.08 of its potential returns per unit of risk. China Resources Gas is currently generating about 0.0 per unit of risk. If you would invest  1,450  in Rocket Internet SE on October 11, 2024 and sell it today you would earn a total of  40.00  from holding Rocket Internet SE or generate 2.76% return on investment over 90 days.

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

Rocket Internet SE  vs.  China Resources Gas

Rocket Internet SE

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rocket Internet SE are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Rocket Internet is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

China Resources Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Resources Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Resources is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Rocket Internet and China Resources

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

The idea behind Rocket Internet SE and China Resources Gas 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.