Correlation Between Jilin Chemical and SuZhou ChunXing

Can any of the company-specific risk be diversified away by investing in both Jilin Chemical and SuZhou ChunXing 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 SuZhou ChunXing 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 SuZhou ChunXing Precision, you can compare the effects of market volatilities on Jilin Chemical and SuZhou ChunXing 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 SuZhou ChunXing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jilin Chemical and SuZhou ChunXing.

Diversification Opportunities for Jilin Chemical and SuZhou ChunXing

0.8

Correlation Coefficient

Jilin Chemical  SuZhou ChunXing

Very poor diversification

The 3 months correlation between Jilin and SuZhou is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Jilin Chemical Fibre and SuZhou ChunXing Precision in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SuZhou ChunXing Precision 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 SuZhou ChunXing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SuZhou ChunXing Precision has no effect on the direction of Jilin Chemical i.e., Jilin Chemical and SuZhou ChunXing go up and down completely randomly.

Pair Corralation between Jilin Chemical and SuZhou ChunXing

Assuming the 90 days trading horizon Jilin Chemical is expected to generate 4.07 times less return on investment than SuZhou ChunXing. But when comparing it to its historical volatility, Jilin Chemical Fibre is 1.57 times less risky than SuZhou ChunXing. It trades about 0.03 of its potential returns per unit of risk. SuZhou ChunXing Precision is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  448.00  in SuZhou ChunXing Precision on December 25, 2024 and sell it today you would earn a total of  50.00  from holding SuZhou ChunXing Precision or generate 11.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.28%
Values	Daily Returns

Jilin Chemical Fibre  vs.  SuZhou ChunXing Precision

Jilin Chemical Fibre

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Jilin Chemical Fibre are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Jilin Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SuZhou ChunXing Precision

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SuZhou ChunXing Precision are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SuZhou ChunXing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jilin Chemical and SuZhou ChunXing

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

The idea behind Jilin Chemical Fibre and SuZhou ChunXing Precision 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.