Correlation Between Rongsheng Petrochemical and Hengli Petrochemical

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

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

Diversification Opportunities for Rongsheng Petrochemical and Hengli Petrochemical

0.83

Correlation Coefficient

Rongsheng Petrochemical  Hengli Petrochemical

Very poor diversification

The 3 months correlation between Rongsheng and Hengli is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Rongsheng Petrochemical Co and Hengli Petrochemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hengli Petrochemical and Rongsheng Petrochemical 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 Rongsheng Petrochemical Co are associated (or correlated) with Hengli Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hengli Petrochemical has no effect on the direction of Rongsheng Petrochemical i.e., Rongsheng Petrochemical and Hengli Petrochemical go up and down completely randomly.

Pair Corralation between Rongsheng Petrochemical and Hengli Petrochemical

Assuming the 90 days trading horizon Rongsheng Petrochemical Co is expected to under-perform the Hengli Petrochemical. In addition to that, Rongsheng Petrochemical is 1.12 times more volatile than Hengli Petrochemical Co. It trades about -0.02 of its total potential returns per unit of risk. Hengli Petrochemical Co is currently generating about 0.0 per unit of volatility. If you would invest  1,570  in Hengli Petrochemical Co on September 24, 2024 and sell it today you would lose (51.00) from holding Hengli Petrochemical Co or give up 3.25% of portfolio value over 90 days.

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

Rongsheng Petrochemical Co  vs.  Hengli Petrochemical Co

Rongsheng Petrochemical

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rongsheng Petrochemical Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Rongsheng Petrochemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hengli Petrochemical

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hengli Petrochemical Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hengli Petrochemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rongsheng Petrochemical and Hengli Petrochemical

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

The idea behind Rongsheng Petrochemical Co and Hengli Petrochemical Co 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.