Correlation Between Xilong Chemical and Shanghai Rongtai

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

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

Diversification Opportunities for Xilong Chemical and Shanghai Rongtai

0.93

Correlation Coefficient

Xilong Chemical  Shanghai Rongtai

Almost no diversification

The 3 months correlation between Xilong and Shanghai is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Xilong Chemical Co and Shanghai Rongtai Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Rongtai Health and Xilong Chemical 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 Xilong Chemical Co are associated (or correlated) with Shanghai Rongtai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Rongtai Health has no effect on the direction of Xilong Chemical i.e., Xilong Chemical and Shanghai Rongtai go up and down completely randomly.

Pair Corralation between Xilong Chemical and Shanghai Rongtai

Assuming the 90 days trading horizon Xilong Chemical Co is expected to generate 1.44 times more return on investment than Shanghai Rongtai. However, Xilong Chemical is 1.44 times more volatile than Shanghai Rongtai Health. It trades about 0.12 of its potential returns per unit of risk. Shanghai Rongtai Health is currently generating about 0.14 per unit of risk. If you would invest  803.00  in Xilong Chemical Co on September 24, 2024 and sell it today you would earn a total of  62.00  from holding Xilong Chemical Co or generate 7.72% return on investment over 90 days.

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

Xilong Chemical Co  vs.  Shanghai Rongtai Health

Xilong Chemical

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xilong Chemical Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xilong Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Rongtai Health

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Rongtai Health are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Rongtai sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xilong Chemical and Shanghai Rongtai

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

The idea behind Xilong Chemical Co and Shanghai Rongtai Health 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.