Correlation Between Jizhong Energy and Sichuan Road

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

By analyzing existing cross correlation between Jizhong Energy Resources and Sichuan Road Bridge, you can compare the effects of market volatilities on Jizhong Energy and Sichuan Road 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 Jizhong Energy with a short position of Sichuan Road. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jizhong Energy and Sichuan Road.

Diversification Opportunities for Jizhong Energy and Sichuan Road

0.79

Correlation Coefficient

Jizhong Energy  Sichuan Road

Poor diversification

The 3 months correlation between Jizhong and Sichuan is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Jizhong Energy Resources and Sichuan Road Bridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Road Bridge and Jizhong Energy 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 Jizhong Energy Resources are associated (or correlated) with Sichuan Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Road Bridge has no effect on the direction of Jizhong Energy i.e., Jizhong Energy and Sichuan Road go up and down completely randomly.

Pair Corralation between Jizhong Energy and Sichuan Road

Assuming the 90 days trading horizon Jizhong Energy Resources is expected to under-perform the Sichuan Road. In addition to that, Jizhong Energy is 1.01 times more volatile than Sichuan Road Bridge. It trades about -0.19 of its total potential returns per unit of risk. Sichuan Road Bridge is currently generating about -0.04 per unit of volatility. If you would invest  757.00  in Sichuan Road Bridge on December 4, 2024 and sell it today you would lose (23.00) from holding Sichuan Road Bridge or give up 3.04% of portfolio value over 90 days.

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

Jizhong Energy Resources  vs.  Sichuan Road Bridge

Jizhong Energy Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jizhong Energy Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Sichuan Road Bridge

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Jizhong Energy and Sichuan Road

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

The idea behind Jizhong Energy Resources and Sichuan Road Bridge 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.