Correlation Between Jilin Chemical and Guangzhou Ruoyuchen

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

Diversification Opportunities for Jilin Chemical and Guangzhou Ruoyuchen

0.8

Correlation Coefficient

Jilin Chemical  Guangzhou Ruoyuchen

Very poor diversification

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

Pair Corralation between Jilin Chemical and Guangzhou Ruoyuchen

Assuming the 90 days trading horizon Jilin Chemical is expected to generate 1.9 times less return on investment than Guangzhou Ruoyuchen. But when comparing it to its historical volatility, Jilin Chemical Fibre is 1.24 times less risky than Guangzhou Ruoyuchen. It trades about 0.18 of its potential returns per unit of risk. Guangzhou Ruoyuchen Information is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,212  in Guangzhou Ruoyuchen Information on September 5, 2024 and sell it today you would earn a total of  1,065  from holding Guangzhou Ruoyuchen Information or generate 87.87% 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.  Guangzhou Ruoyuchen Informatio

Jilin Chemical Fibre

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jilin Chemical Fibre are ranked lower than 14 (%) 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.

Guangzhou Ruoyuchen

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Ruoyuchen Information are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Ruoyuchen sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jilin Chemical and Guangzhou Ruoyuchen

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

The idea behind Jilin Chemical Fibre and Guangzhou Ruoyuchen Information 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.