Correlation Between Guangdong Jingyi and Shanghai Material

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

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

Diversification Opportunities for Guangdong Jingyi and Shanghai Material

0.76

Correlation Coefficient

Guangdong Jingyi  Shanghai Material

Poor diversification

The 3 months correlation between Guangdong and Shanghai is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Jingyi Metal and Shanghai Material Trading in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Material Trading and Guangdong Jingyi 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 Guangdong Jingyi Metal are associated (or correlated) with Shanghai Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Material Trading has no effect on the direction of Guangdong Jingyi i.e., Guangdong Jingyi and Shanghai Material go up and down completely randomly.

Pair Corralation between Guangdong Jingyi and Shanghai Material

Assuming the 90 days trading horizon Guangdong Jingyi Metal is expected to under-perform the Shanghai Material. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Jingyi Metal is 1.3 times less risky than Shanghai Material. The stock trades about -0.21 of its potential returns per unit of risk. The Shanghai Material Trading is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  1,083  in Shanghai Material Trading on October 10, 2024 and sell it today you would lose (130.00) from holding Shanghai Material Trading or give up 12.0% of portfolio value over 90 days.

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

Guangdong Jingyi Metal  vs.  Shanghai Material Trading

Guangdong Jingyi Metal

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Jingyi Metal are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Jingyi sustained solid returns over the last few months and may actually be approaching a breakup point.

Shanghai Material Trading

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Material Trading are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shanghai Material sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Jingyi and Shanghai Material

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

The idea behind Guangdong Jingyi Metal and Shanghai Material Trading 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.