Correlation Between Jiangxi Hengda and Guangdong Shenglu

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

By analyzing existing cross correlation between Jiangxi Hengda Hi Tech and Guangdong Shenglu Telecommunication, you can compare the effects of market volatilities on Jiangxi Hengda and Guangdong Shenglu 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 Hengda with a short position of Guangdong Shenglu. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jiangxi Hengda and Guangdong Shenglu.

Diversification Opportunities for Jiangxi Hengda and Guangdong Shenglu

0.88

Correlation Coefficient

Jiangxi Hengda  Guangdong Shenglu

Very poor diversification

The 3 months correlation between Jiangxi and Guangdong is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Jiangxi Hengda Hi Tech and Guangdong Shenglu Telecommunic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Shenglu and Jiangxi Hengda 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 Hengda Hi Tech are associated (or correlated) with Guangdong Shenglu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Shenglu has no effect on the direction of Jiangxi Hengda i.e., Jiangxi Hengda and Guangdong Shenglu go up and down completely randomly.

Pair Corralation between Jiangxi Hengda and Guangdong Shenglu

Assuming the 90 days trading horizon Jiangxi Hengda Hi Tech is expected to under-perform the Guangdong Shenglu. In addition to that, Jiangxi Hengda is 1.57 times more volatile than Guangdong Shenglu Telecommunication. It trades about -0.02 of its total potential returns per unit of risk. Guangdong Shenglu Telecommunication is currently generating about -0.02 per unit of volatility. If you would invest  702.00  in Guangdong Shenglu Telecommunication on September 25, 2024 and sell it today you would lose (10.00) from holding Guangdong Shenglu Telecommunication or give up 1.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Jiangxi Hengda Hi Tech  vs.  Guangdong Shenglu Telecommunic

Jiangxi Hengda Hi

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jiangxi Hengda Hi Tech are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Jiangxi Hengda sustained solid returns over the last few months and may actually be approaching a breakup point.

Guangdong Shenglu

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Shenglu Telecommunication are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Shenglu sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Jiangxi Hengda and Guangdong Shenglu

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

The idea behind Jiangxi Hengda Hi Tech and Guangdong Shenglu Telecommunication 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.