Correlation Between Jilin Chemical and Lier Chemical

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

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

Diversification Opportunities for Jilin Chemical and Lier Chemical

0.86

Correlation Coefficient

Jilin Chemical  Lier Chemical

Very poor diversification

The 3 months correlation between Jilin and Lier is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Jilin Chemical Fibre and Lier Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lier Chemical and Jilin 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 Jilin Chemical Fibre are associated (or correlated) with Lier Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lier Chemical has no effect on the direction of Jilin Chemical i.e., Jilin Chemical and Lier Chemical go up and down completely randomly.

Pair Corralation between Jilin Chemical and Lier Chemical

Assuming the 90 days trading horizon Jilin Chemical Fibre is expected to generate 1.38 times more return on investment than Lier Chemical. However, Jilin Chemical is 1.38 times more volatile than Lier Chemical Co. It trades about 0.15 of its potential returns per unit of risk. Lier Chemical Co is currently generating about 0.12 per unit of risk. If you would invest  293.00  in Jilin Chemical Fibre on September 24, 2024 and sell it today you would earn a total of  102.00  from holding Jilin Chemical Fibre or generate 34.81% return on investment over 90 days.

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

Jilin Chemical Fibre  vs.  Lier Chemical Co

Jilin Chemical Fibre

Risk-Adjusted Performance

12 of 100

Good

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

Lier Chemical

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lier Chemical Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lier Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jilin Chemical and Lier Chemical

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

The idea behind Jilin Chemical Fibre and Lier Chemical 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.