Correlation Between Ningbo David and Shandong Ruifeng

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

By analyzing existing cross correlation between Ningbo David Medical and Shandong Ruifeng Chemical, you can compare the effects of market volatilities on Ningbo David and Shandong Ruifeng 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 Ningbo David with a short position of Shandong Ruifeng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ningbo David and Shandong Ruifeng.

Diversification Opportunities for Ningbo David and Shandong Ruifeng

0.65

Correlation Coefficient

Ningbo David  Shandong Ruifeng

Poor diversification

The 3 months correlation between Ningbo and Shandong is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Ningbo David Medical and Shandong Ruifeng Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shandong Ruifeng Chemical and Ningbo David 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 Ningbo David Medical are associated (or correlated) with Shandong Ruifeng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shandong Ruifeng Chemical has no effect on the direction of Ningbo David i.e., Ningbo David and Shandong Ruifeng go up and down completely randomly.

Pair Corralation between Ningbo David and Shandong Ruifeng

Assuming the 90 days trading horizon Ningbo David is expected to generate 1.63 times less return on investment than Shandong Ruifeng. But when comparing it to its historical volatility, Ningbo David Medical is 1.21 times less risky than Shandong Ruifeng. It trades about 0.09 of its potential returns per unit of risk. Shandong Ruifeng Chemical is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  762.00  in Shandong Ruifeng Chemical on September 24, 2024 and sell it today you would earn a total of  278.00  from holding Shandong Ruifeng Chemical or generate 36.48% return on investment over 90 days.

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

Ningbo David Medical  vs.  Shandong Ruifeng Chemical

Ningbo David Medical

Risk-Adjusted Performance

7 of 100

OK

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

Shandong Ruifeng Chemical

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Ningbo David and Shandong Ruifeng

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

The idea behind Ningbo David Medical and Shandong Ruifeng 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.