Correlation Between Chengdu Xingrong and Jinhui Liquor

Can any of the company-specific risk be diversified away by investing in both Chengdu Xingrong and Jinhui Liquor 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 Chengdu Xingrong and Jinhui Liquor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Chengdu Xingrong Investment and Jinhui Liquor Co, you can compare the effects of market volatilities on Chengdu Xingrong and Jinhui Liquor 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 Chengdu Xingrong with a short position of Jinhui Liquor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chengdu Xingrong and Jinhui Liquor.

Diversification Opportunities for Chengdu Xingrong and Jinhui Liquor

0.4

Correlation Coefficient

Chengdu Xingrong  Jinhui Liquor

Very weak diversification

The 3 months correlation between Chengdu and Jinhui is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Chengdu Xingrong Investment and Jinhui Liquor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinhui Liquor and Chengdu Xingrong 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 Chengdu Xingrong Investment are associated (or correlated) with Jinhui Liquor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinhui Liquor has no effect on the direction of Chengdu Xingrong i.e., Chengdu Xingrong and Jinhui Liquor go up and down completely randomly.

Pair Corralation between Chengdu Xingrong and Jinhui Liquor

Assuming the 90 days trading horizon Chengdu Xingrong Investment is expected to under-perform the Jinhui Liquor. But the stock apears to be less risky and, when comparing its historical volatility, Chengdu Xingrong Investment is 1.5 times less risky than Jinhui Liquor. The stock trades about -0.07 of its potential returns per unit of risk. The Jinhui Liquor Co is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,032  in Jinhui Liquor Co on October 25, 2024 and sell it today you would lose (161.00) from holding Jinhui Liquor Co or give up 7.92% of portfolio value over 90 days.

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

Chengdu Xingrong Investment  vs.  Jinhui Liquor Co

Chengdu Xingrong Inv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chengdu Xingrong Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Jinhui Liquor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jinhui Liquor Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Chengdu Xingrong and Jinhui Liquor

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

The idea behind Chengdu Xingrong Investment and Jinhui Liquor Co 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.