Correlation Between Zhejiang JIULI and Datang HuaYin

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Can any of the company-specific risk be diversified away by investing in both Zhejiang JIULI and Datang HuaYin 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 Datang HuaYin 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 Datang HuaYin Electric, you can compare the effects of market volatilities on Zhejiang JIULI and Datang HuaYin 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 Datang HuaYin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zhejiang JIULI and Datang HuaYin.

Diversification Opportunities for Zhejiang JIULI and Datang HuaYin

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Zhejiang and Datang is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Zhejiang JIULI Hi tech and Datang HuaYin Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datang HuaYin Electric 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 Datang HuaYin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datang HuaYin Electric has no effect on the direction of Zhejiang JIULI i.e., Zhejiang JIULI and Datang HuaYin go up and down completely randomly.

Pair Corralation between Zhejiang JIULI and Datang HuaYin

Assuming the 90 days trading horizon Zhejiang JIULI Hi tech is expected to generate 0.78 times more return on investment than Datang HuaYin. However, Zhejiang JIULI Hi tech is 1.28 times less risky than Datang HuaYin. It trades about 0.03 of its potential returns per unit of risk. Datang HuaYin Electric is currently generating about 0.01 per unit of risk. If you would invest  2,280  in Zhejiang JIULI Hi tech on September 29, 2024 and sell it today you would earn a total of  66.00  from holding Zhejiang JIULI Hi tech or generate 2.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Zhejiang JIULI Hi tech  vs.  Datang HuaYin Electric

 Performance 
       Timeline  
Zhejiang JIULI Hi 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
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.
Datang HuaYin Electric 

Risk-Adjusted Performance

0 of 100

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

Zhejiang JIULI and Datang HuaYin Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Zhejiang JIULI and Datang HuaYin

The main advantage of trading using opposite Zhejiang JIULI and Datang HuaYin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zhejiang JIULI position performs unexpectedly, Datang HuaYin 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 Datang HuaYin will offset losses from the drop in Datang HuaYin's long position.
The idea behind Zhejiang JIULI Hi tech and Datang HuaYin Electric 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.

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