Correlation Between Jiugui Liquor and Sichuan Yahua

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

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

Diversification Opportunities for Jiugui Liquor and Sichuan Yahua

0.8

Correlation Coefficient

Jiugui Liquor  Sichuan Yahua

Very poor diversification

The 3 months correlation between Jiugui and Sichuan is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Jiugui Liquor Co and Sichuan Yahua Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Yahua Industrial and Jiugui Liquor 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 Jiugui Liquor Co are associated (or correlated) with Sichuan Yahua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Yahua Industrial has no effect on the direction of Jiugui Liquor i.e., Jiugui Liquor and Sichuan Yahua go up and down completely randomly.

Pair Corralation between Jiugui Liquor and Sichuan Yahua

Assuming the 90 days trading horizon Jiugui Liquor Co is expected to under-perform the Sichuan Yahua. In addition to that, Jiugui Liquor is 1.05 times more volatile than Sichuan Yahua Industrial. It trades about -0.07 of its total potential returns per unit of risk. Sichuan Yahua Industrial is currently generating about -0.05 per unit of volatility. If you would invest  2,371  in Sichuan Yahua Industrial on October 4, 2024 and sell it today you would lose (1,232) from holding Sichuan Yahua Industrial or give up 51.96% of portfolio value over 90 days.

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

Jiugui Liquor Co  vs.  Sichuan Yahua Industrial

Jiugui Liquor

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sichuan Yahua Industrial

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Jiugui Liquor and Sichuan Yahua

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

The idea behind Jiugui Liquor Co and Sichuan Yahua 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.