Correlation Between Jilin Chemical and Hubei Dinglong

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

Diversification Opportunities for Jilin Chemical and Hubei Dinglong

0.85

Correlation Coefficient

Jilin Chemical  Hubei Dinglong

Very poor diversification

The 3 months correlation between Jilin and Hubei is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Jilin Chemical Fibre and Hubei Dinglong Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Dinglong 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 Hubei Dinglong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Dinglong Chemical has no effect on the direction of Jilin Chemical i.e., Jilin Chemical and Hubei Dinglong go up and down completely randomly.

Pair Corralation between Jilin Chemical and Hubei Dinglong

Assuming the 90 days trading horizon Jilin Chemical is expected to generate 1.1 times less return on investment than Hubei Dinglong. But when comparing it to its historical volatility, Jilin Chemical Fibre is 1.16 times less risky than Hubei Dinglong. It trades about 0.18 of its potential returns per unit of risk. Hubei Dinglong Chemical is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,945  in Hubei Dinglong Chemical on September 4, 2024 and sell it today you would earn a total of  810.00  from holding Hubei Dinglong Chemical or generate 41.65% 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.  Hubei Dinglong Chemical

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.

Hubei Dinglong Chemical

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Dinglong Chemical are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hubei Dinglong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jilin Chemical and Hubei Dinglong

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

The idea behind Jilin Chemical Fibre and Hubei Dinglong 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.