Correlation Between Western Metal and Guangdong Jinming

Can any of the company-specific risk be diversified away by investing in both Western Metal and Guangdong Jinming 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 Western Metal and Guangdong Jinming into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Metal Materials and Guangdong Jinming Machinery, you can compare the effects of market volatilities on Western Metal and Guangdong Jinming 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 Western Metal with a short position of Guangdong Jinming. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Metal and Guangdong Jinming.

Diversification Opportunities for Western Metal and Guangdong Jinming

0.31

Correlation Coefficient

Western Metal  Guangdong Jinming

Weak diversification

The 3 months correlation between Western and Guangdong is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Western Metal Materials and Guangdong Jinming Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Jinming and Western Metal 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 Western Metal Materials are associated (or correlated) with Guangdong Jinming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Jinming has no effect on the direction of Western Metal i.e., Western Metal and Guangdong Jinming go up and down completely randomly.

Pair Corralation between Western Metal and Guangdong Jinming

Assuming the 90 days trading horizon Western Metal Materials is expected to generate 1.16 times more return on investment than Guangdong Jinming. However, Western Metal is 1.16 times more volatile than Guangdong Jinming Machinery. It trades about 0.03 of its potential returns per unit of risk. Guangdong Jinming Machinery is currently generating about -0.44 per unit of risk. If you would invest  1,561  in Western Metal Materials on October 8, 2024 and sell it today you would earn a total of  16.00  from holding Western Metal Materials or generate 1.02% return on investment over 90 days.

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

Western Metal Materials  vs.  Guangdong Jinming Machinery

Western Metal Materials

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Western Metal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guangdong Jinming

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Jinming Machinery 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Western Metal and Guangdong Jinming

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

The idea behind Western Metal Materials and Guangdong Jinming Machinery 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.