Correlation Between Golden Bridge and Dongnam Chemical

Can any of the company-specific risk be diversified away by investing in both Golden Bridge and Dongnam Chemical 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 Golden Bridge and Dongnam Chemical into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Golden Bridge and Dongnam Chemical

-0.16

Correlation Coefficient

Golden Bridge  Dongnam Chemical

Good diversification

The 3 months correlation between Golden and Dongnam is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Golden Bridge Investment and Dongnam Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongnam Chemical and Golden Bridge 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 Golden Bridge Investment are associated (or correlated) with Dongnam Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongnam Chemical has no effect on the direction of Golden Bridge i.e., Golden Bridge and Dongnam Chemical go up and down completely randomly.

Pair Corralation between Golden Bridge and Dongnam Chemical

Assuming the 90 days trading horizon Golden Bridge Investment is expected to under-perform the Dongnam Chemical. But the stock apears to be less risky and, when comparing its historical volatility, Golden Bridge Investment is 1.32 times less risky than Dongnam Chemical. The stock trades about -0.05 of its potential returns per unit of risk. The Dongnam Chemical Co is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,145,000  in Dongnam Chemical Co on December 25, 2024 and sell it today you would earn a total of  205,000  from holding Dongnam Chemical Co or generate 6.52% return on investment over 90 days.

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

Golden Bridge Investment  vs.  Dongnam Chemical Co

Golden Bridge Investment

Risk-Adjusted Performance

Very Weak

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

Dongnam Chemical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dongnam Chemical Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongnam Chemical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Golden Bridge and Dongnam Chemical

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

The idea behind Golden Bridge Investment and Dongnam Chemical 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.