Correlation Between Rongsheng Petrochemical and Sobute New

Can any of the company-specific risk be diversified away by investing in both Rongsheng Petrochemical and Sobute New 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 Sobute New 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 Sobute New Materials, you can compare the effects of market volatilities on Rongsheng Petrochemical and Sobute New 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 Sobute New. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rongsheng Petrochemical and Sobute New.

Diversification Opportunities for Rongsheng Petrochemical and Sobute New

0.92

Correlation Coefficient

Rongsheng Petrochemical  Sobute New

Almost no diversification

The 3 months correlation between Rongsheng and Sobute is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Rongsheng Petrochemical Co and Sobute New Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sobute New Materials 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 Sobute New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sobute New Materials has no effect on the direction of Rongsheng Petrochemical i.e., Rongsheng Petrochemical and Sobute New go up and down completely randomly.

Pair Corralation between Rongsheng Petrochemical and Sobute New

Assuming the 90 days trading horizon Rongsheng Petrochemical is expected to generate 1.7 times less return on investment than Sobute New. But when comparing it to its historical volatility, Rongsheng Petrochemical Co is 1.1 times less risky than Sobute New. It trades about 0.1 of its potential returns per unit of risk. Sobute New Materials is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  688.00  in Sobute New Materials on September 5, 2024 and sell it today you would earn a total of  157.00  from holding Sobute New Materials or generate 22.82% return on investment over 90 days.

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

Rongsheng Petrochemical Co  vs.  Sobute New Materials

Rongsheng Petrochemical

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rongsheng Petrochemical Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Rongsheng Petrochemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Sobute New Materials

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sobute New Materials are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sobute New sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rongsheng Petrochemical and Sobute New

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

The idea behind Rongsheng Petrochemical Co and Sobute New Materials 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.