Correlation Between Jiangxi Ganfeng and Jilin Chemical

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

By analyzing existing cross correlation between Jiangxi Ganfeng Lithium and Jilin Chemical Fibre, you can compare the effects of market volatilities on Jiangxi Ganfeng and Jilin 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 Jiangxi Ganfeng with a short position of Jilin Chemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jiangxi Ganfeng and Jilin Chemical.

Diversification Opportunities for Jiangxi Ganfeng and Jilin Chemical

0.87

Correlation Coefficient

Jiangxi Ganfeng  Jilin Chemical

Very poor diversification

The 3 months correlation between Jiangxi and Jilin is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Jiangxi Ganfeng Lithium and Jilin Chemical Fibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jilin Chemical Fibre and Jiangxi Ganfeng 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 Jiangxi Ganfeng Lithium are associated (or correlated) with Jilin Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jilin Chemical Fibre has no effect on the direction of Jiangxi Ganfeng i.e., Jiangxi Ganfeng and Jilin Chemical go up and down completely randomly.

Pair Corralation between Jiangxi Ganfeng and Jilin Chemical

Assuming the 90 days trading horizon Jiangxi Ganfeng Lithium is expected to generate 1.39 times more return on investment than Jilin Chemical. However, Jiangxi Ganfeng is 1.39 times more volatile than Jilin Chemical Fibre. It trades about 0.2 of its potential returns per unit of risk. Jilin Chemical Fibre is currently generating about 0.14 per unit of risk. If you would invest  2,610  in Jiangxi Ganfeng Lithium on September 2, 2024 and sell it today you would earn a total of  1,595  from holding Jiangxi Ganfeng Lithium or generate 61.11% return on investment over 90 days.

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

Jiangxi Ganfeng Lithium  vs.  Jilin Chemical Fibre

Jiangxi Ganfeng Lithium

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangxi Ganfeng Lithium are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangxi Ganfeng sustained solid returns over the last few months and may actually be approaching a breakup point.

Jilin Chemical Fibre

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jilin Chemical Fibre are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jilin Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jiangxi Ganfeng and Jilin Chemical

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

The idea behind Jiangxi Ganfeng Lithium and Jilin Chemical Fibre 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.