Correlation Between City Development and Jinhui Liquor

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

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

Diversification Opportunities for City Development and Jinhui Liquor

0.6

Correlation Coefficient

City Development  Jinhui Liquor

Poor diversification

The 3 months correlation between City and Jinhui is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding City Development Environment and Jinhui Liquor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinhui Liquor and City Development 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 City Development Environment 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 City Development i.e., City Development and Jinhui Liquor go up and down completely randomly.

Pair Corralation between City Development and Jinhui Liquor

Assuming the 90 days trading horizon City Development Environment is expected to generate 0.92 times more return on investment than Jinhui Liquor. However, City Development Environment is 1.09 times less risky than Jinhui Liquor. It trades about 0.04 of its potential returns per unit of risk. Jinhui Liquor Co is currently generating about -0.02 per unit of risk. If you would invest  972.00  in City Development Environment on October 11, 2024 and sell it today you would earn a total of  267.00  from holding City Development Environment or generate 27.47% return on investment over 90 days.

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

City Development Environment  vs.  Jinhui Liquor Co

City Development Env

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in City Development Environment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, City Development 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

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 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 City Development and Jinhui Liquor

The main advantage of trading using opposite City Development and Jinhui Liquor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if City Development 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 City Development Environment 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.