Correlation Between Daoming OpticsChemical and Jilin Chemical

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

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

Diversification Opportunities for Daoming OpticsChemical and Jilin Chemical

0.93

Correlation Coefficient

Daoming OpticsChemical  Jilin Chemical

Almost no diversification

The 3 months correlation between Daoming and Jilin is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Daoming OpticsChemical Co 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 Daoming OpticsChemical 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 Daoming OpticsChemical Co 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 Daoming OpticsChemical i.e., Daoming OpticsChemical and Jilin Chemical go up and down completely randomly.

Pair Corralation between Daoming OpticsChemical and Jilin Chemical

Assuming the 90 days trading horizon Daoming OpticsChemical is expected to generate 2.31 times less return on investment than Jilin Chemical. But when comparing it to its historical volatility, Daoming OpticsChemical Co is 1.49 times less risky than Jilin Chemical. It trades about 0.11 of its potential returns per unit of risk. Jilin Chemical Fibre is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  321.00  in Jilin Chemical Fibre on September 20, 2024 and sell it today you would earn a total of  87.00  from holding Jilin Chemical Fibre or generate 27.1% return on investment over 90 days.

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

Daoming OpticsChemical Co  vs.  Jilin Chemical Fibre

Daoming OpticsChemical

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Daoming OpticsChemical Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Daoming OpticsChemical sustained solid returns over the last few months and may actually be approaching a breakup point.

Jilin Chemical Fibre

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jilin Chemical Fibre are ranked lower than 15 (%) 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 Daoming OpticsChemical and Jilin Chemical

The main advantage of trading using opposite Daoming OpticsChemical and Jilin Chemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daoming OpticsChemical 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 Daoming OpticsChemical Co 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.