Correlation Between Zhejiang JIULI and Changjiang Jinggong

Can any of the company-specific risk be diversified away by investing in both Zhejiang JIULI and Changjiang Jinggong 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 Zhejiang JIULI and Changjiang Jinggong into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zhejiang JIULI Hi tech and Changjiang Jinggong Steel, you can compare the effects of market volatilities on Zhejiang JIULI and Changjiang Jinggong 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 Zhejiang JIULI with a short position of Changjiang Jinggong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang JIULI and Changjiang Jinggong.

Diversification Opportunities for Zhejiang JIULI and Changjiang Jinggong

0.24

Correlation Coefficient

Zhejiang JIULI  Changjiang Jinggong

Modest diversification

The 3 months correlation between Zhejiang and Changjiang is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang JIULI Hi tech and Changjiang Jinggong Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Changjiang Jinggong Steel and Zhejiang JIULI 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 Zhejiang JIULI Hi tech are associated (or correlated) with Changjiang Jinggong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Changjiang Jinggong Steel has no effect on the direction of Zhejiang JIULI i.e., Zhejiang JIULI and Changjiang Jinggong go up and down completely randomly.

Pair Corralation between Zhejiang JIULI and Changjiang Jinggong

Assuming the 90 days trading horizon Zhejiang JIULI Hi tech is expected to generate 0.68 times more return on investment than Changjiang Jinggong. However, Zhejiang JIULI Hi tech is 1.48 times less risky than Changjiang Jinggong. It trades about 0.13 of its potential returns per unit of risk. Changjiang Jinggong Steel is currently generating about -0.16 per unit of risk. If you would invest  2,370  in Zhejiang JIULI Hi tech on October 22, 2024 and sell it today you would earn a total of  63.00  from holding Zhejiang JIULI Hi tech or generate 2.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Zhejiang JIULI Hi tech  vs.  Changjiang Jinggong Steel

Zhejiang JIULI Hi

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang JIULI Hi tech are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Zhejiang JIULI is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Changjiang Jinggong Steel

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Changjiang Jinggong Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Changjiang Jinggong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Zhejiang JIULI and Changjiang Jinggong

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

The idea behind Zhejiang JIULI Hi tech and Changjiang Jinggong Steel 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.