Correlation Between Guocheng Mining and Jinhui Liquor

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

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

Diversification Opportunities for Guocheng Mining and Jinhui Liquor

0.77

Correlation Coefficient

Guocheng Mining  Jinhui Liquor

Poor diversification

The 3 months correlation between Guocheng and Jinhui is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Guocheng Mining Co and Jinhui Liquor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinhui Liquor and Guocheng Mining 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 Guocheng Mining Co 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 Guocheng Mining i.e., Guocheng Mining and Jinhui Liquor go up and down completely randomly.

Pair Corralation between Guocheng Mining and Jinhui Liquor

Assuming the 90 days trading horizon Guocheng Mining Co is expected to generate 1.76 times more return on investment than Jinhui Liquor. However, Guocheng Mining is 1.76 times more volatile than Jinhui Liquor Co. It trades about 0.01 of its potential returns per unit of risk. Jinhui Liquor Co is currently generating about -0.07 per unit of risk. If you would invest  1,271  in Guocheng Mining Co on December 26, 2024 and sell it today you would earn a total of  0.00  from holding Guocheng Mining Co or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Guocheng Mining Co  vs.  Jinhui Liquor Co

Guocheng Mining

Risk-Adjusted Performance

Very Weak

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

Jinhui Liquor

Risk-Adjusted Performance

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 somewhat strong basic indicators, Jinhui Liquor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guocheng Mining and Jinhui Liquor

The main advantage of trading using opposite Guocheng Mining and Jinhui Liquor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guocheng Mining 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 Guocheng Mining Co 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.