Correlation Between Jilin Chemical and Ningbo Fujia

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

Diversification Opportunities for Jilin Chemical and Ningbo Fujia

0.28

Correlation Coefficient

Jilin Chemical  Ningbo Fujia

Modest diversification

The 3 months correlation between Jilin and Ningbo is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Jilin Chemical Fibre and Ningbo Fujia Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ningbo Fujia Industrial 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 Ningbo Fujia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ningbo Fujia Industrial has no effect on the direction of Jilin Chemical i.e., Jilin Chemical and Ningbo Fujia go up and down completely randomly.

Pair Corralation between Jilin Chemical and Ningbo Fujia

Assuming the 90 days trading horizon Jilin Chemical is expected to generate 6.17 times less return on investment than Ningbo Fujia. But when comparing it to its historical volatility, Jilin Chemical Fibre is 1.57 times less risky than Ningbo Fujia. It trades about 0.02 of its potential returns per unit of risk. Ningbo Fujia Industrial is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,469  in Ningbo Fujia Industrial on December 24, 2024 and sell it today you would earn a total of  259.00  from holding Ningbo Fujia Industrial or generate 17.63% return on investment over 90 days.

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

Jilin Chemical Fibre  vs.  Ningbo Fujia Industrial

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.

Ningbo Fujia Industrial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ningbo Fujia Industrial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ningbo Fujia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jilin Chemical and Ningbo Fujia

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

The idea behind Jilin Chemical Fibre and Ningbo Fujia Industrial 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.