Correlation Between Jilin Chemical and HeBei Jinniu

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

Diversification Opportunities for Jilin Chemical and HeBei Jinniu

0.08

Correlation Coefficient

Jilin Chemical  HeBei Jinniu

Significant diversification

The 3 months correlation between Jilin and HeBei is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Jilin Chemical Fibre and HeBei Jinniu Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HeBei Jinniu 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 HeBei Jinniu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HeBei Jinniu Chemical has no effect on the direction of Jilin Chemical i.e., Jilin Chemical and HeBei Jinniu go up and down completely randomly.

Pair Corralation between Jilin Chemical and HeBei Jinniu

Assuming the 90 days trading horizon Jilin Chemical Fibre is expected to generate 0.77 times more return on investment than HeBei Jinniu. However, Jilin Chemical Fibre is 1.3 times less risky than HeBei Jinniu. It trades about 0.02 of its potential returns per unit of risk. HeBei Jinniu Chemical is currently generating about 0.0 per unit of risk. If you would invest  395.00  in Jilin Chemical Fibre on December 1, 2024 and sell it today you would earn a total of  3.00  from holding Jilin Chemical Fibre or generate 0.76% return on investment over 90 days.

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

Jilin Chemical Fibre  vs.  HeBei Jinniu Chemical

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.

HeBei Jinniu Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days HeBei Jinniu Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HeBei Jinniu is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Jilin Chemical and HeBei Jinniu

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

The idea behind Jilin Chemical Fibre and HeBei Jinniu 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.